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 FOR Report on Discom Viability

The sustainability and financial viability of DISCOMs are critical for ensuring a reliable and
financially stable power sector in India. Recognizing the importance of the issues faced by
DISCOMs, the Forum of Regulators (FOR), during its 88th meeting held on October 13, 2023,
focused on the issues faced by the DISCOMs and felt the need for exploring measures to make
them financially stable in the long- term. It was further deliberated that certain distribution
utilities have been able to successfully transform their businesses through proactive
initiatives and therefore it was decided that these best practices can be compiled and
presented for others to follow. Accordingly, the FOR constituted a Working Group to study
factors impacting the DISCOMs sustainability.

Working group presented this report to FOR during the 94th meeting held on 10th January 2025.
FOR approved this report with further observations given at page 18 of this Report.

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Table of Contents
1 Executive Summary ......................................................................................................... 10
1.1 Background........................................................................................................................ 10
1.2 Approach and Methodology ........................................................................................... 10
1.3 Case Studies....................................................................................................................... 11
1.4 Employee and A&G cost Benchmarking....................................................................... 11
1.5 KPI based Incentive Framework .................................................................................... 12
1.6 Recommendations and Way Forward ........................................................................... 12
1.7 Other Key Recommendation........................................................................................... 13
2 Introduction ...................................................................................................................... 15
2.1 Overview............................................................................................................................ 15
2.2 Functions of the Forum .................................................................................................... 15
2.3 88th Meeting of Forum of Regulators and Constitution of Working Group ............. 15
2.4 Deliberations of the Working Group ............................................................................. 16
2.5 First Meeting of the Working Group ............................................................................. 16
2.6 Second Meeting of the Working Group ........................................................................ 16
2.7 Third Meeting of the Working Group ........................................................................... 17
2.8 Fourth Meeting of the Working Group ......................................................................... 17
2.9 94th Meeting of FOR .......................................................................................................... 18
2.10 Objective of the Report .................................................................................................... 18
2.11 Approach and methodology ........................................................................................... 19
2.12 Structure of the Report ..................................................................................................... 20
3 Background ....................................................................................................................... 21
4 Analysis of Turnaround Strategies of Progressive DISCOMs ............................... 24
4.1 GUJARAT .......................................................................................................................... 24
4.1.1 Overview ........................................................................................................................... 24
4.1.2 Key Achievements ........................................................................................................... 25
4.1.3 The Turn-Around - How Reforms Helped Change? ................................................ 27
4.1.4 New Age Reforms............................................................................................................ 28
4.1.5 Investments....................................................................................................................... 29
4.2 TATA Power...................................................................................................................... 30
4.2.1 Overview ........................................................................................................................... 30
4.2.2 Tata Power Delhi Distribution Limited (TPDDL) .................................................... 30
4.2.3 Tata Power – Odisha DISCOMs ................................................................................... 33
4.3 MP DISCOMS.................................................................................................................... 38

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4.3.1 Overview ........................................................................................................................... 38

4.3.2 Key Achievements ............................................................................................................ 38
4.3.3 Major Initiatives ................................................................................................................ 40
4.4 TORRENT POWER LTD. ................................................................................................ 42
4.4.1 TPL- Ahmedabad ............................................................................................................. 42
4.4.2 TPL-Bhiwandi ................................................................................................................... 45
4.5 CESC , RAJASTHAN ....................................................................................................... 46
4.5.1 Key Achievements ........................................................................................................... 47
4.5.2 Major Initiatives .............................................................................................................. 48
4.6 MP CENTRAL DISCOM ................................................................................................. 50
4.7 SERCs ................................................................................................................................. 51
5 Identification, Analysis of Factors impacting DISCOM Viability along with
Recommendation on improving Operational Efficiency ......................................... 52
5.1 Factors impacting the Sustainability of DISCOMs ...................................................... 52
5.1.1 AT&C Losses .................................................................................................................... 52
5.1.2 Cross Subsidies ................................................................................................................ 57
5.1.3 Operation and Maintenance (O&M) Costs................................................................. 59
5.1.4 Optimizing Human Resources for enhanced Efficiency in DISCOMs ................ 61
5.1.5 Timely Issuance of Tariff Orders ................................................................................. 63
5.1.6 Regulatory Assets ............................................................................................................ 65
5.1.7 ACS-ARR Gap.................................................................................................................. 66
5.2 Correlation Between Performance Metrics: ACS-ARR Gap, AT&C Losses, Billing
Efficiency, and Collection Efficiency ......................................................................... 68
5.2.1 Analysis of the Correlation ............................................................................................ 68
6 Analysis and Benchmarking of Employee and Administrative Cost Structure .. 70
6.1 Overview............................................................................................................................ 70
6.2 Analysis of Employee and A&G Cost Structure .......................................................... 70
6.2.1 Employee Expenses .......................................................................................................... 71
6.2.2 A&G Expenses .................................................................................................................. 71
6.3 Benchmarking of Employee and A&G Cost and Optimisation ................................. 71
6.3.1 Benchmarking Philosophy .............................................................................................. 71
6.3.2 Sample Selection Criteria................................................................................................. 72
6.4 Benchmarking Methodology .......................................................................................... 73
6.4.1 Employee expenses per sales (Rs/kWh): ..................................................................... 73
6.4.2 Employee expenses as a percentage of ACoS:............................................................ 74

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6.4.3 Employee and A&G Expenses per sales (Rs/kWh): .................................................. 75

6.4.4 Employee and A&G Expenses as a percentage of ACOS: ....................................... 75
6.5 Recommendations on Employee and A&G cost structures for optimization of
employee cost ................................................................................................................ 77
6.5.1 Workforce Rationalization and Skill Mapping ......................................................... 77
6.5.2 Rationalisation/Taking over of Terminal Benefits by State Governments .......... 77
6.5.3 Leveraging Technology for Operational Efficiency ................................................. 77
6.5.4 Performance-Based Incentive Structures .................................................................... 78
6.6 KPI based Incentive Framework .................................................................................... 78
6.6.1 Overview ........................................................................................................................... 78
6.6.2 Incentive Mechanism ...................................................................................................... 78
7 Recommendations and Way Forward .......................................................................... 82
7.1 Summary of Key Recommendations ............................................................................. 82
7.1.1 AT&C Loss Reduction .................................................................................................... 82
7.1.2 Ways to Optimise O&M Cost........................................................................................ 83
7.1.3 Ways to Optimise Human Resource ............................................................................ 84
7.1.4 Ways to Rationalise of Cross Subsidies ...................................................................... 84
7.1.5 Timely Issuance of Tariff Order ................................................................................... 84
7.1.6 Measures to Avoid Regulatory Assets ......................................................................... 84
7.2 Other Key Recommendations ......................................................................................... 84
7.2.1 Platform for Sharing Best Practices:............................................................................. 84
7.2.2 Subsidy Management: .................................................................................................... 85
7.2.3 Recovery through Fixed Charges: ................................................................................. 85
7.2.4 Continued Government Support:................................................................................. 85
7.3 Recommendation Matrix ................................................................................................. 86

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List of Tables
Table 5:1 - Correlation Metrics (ACS-ARR, AT&C Loss, Billing Efficiency, and Collection Efficiency)
.............................................................................................................................................................................. 68
Table 6:1 - Employee expenses per unit of sales (Rs/kWh) .......................................................................... 73
Table 6:2 - Employee expenses as a percentage of ACoS .............................................................................. 74
Table 6:3 - Employee and A&G Expenses per sales (Rs/kWh) ................................................................... 75
Table 6:4 - Employee and A&G Expenses as a percentage of ACOS .......................................................... 75
Table 6:4 - Employee and A&G Expenses as a percentage of ACOS for Hilly and NE Regions ............. 76
Table 6:5 - Assessment Matrix for a Distribution Utility ........................................................................... 79
Table 7:1 – List of Recommendations ............................................................................................................. 87

List of Figures
Figure 1: Comparison of Profitability Status of DISCOMs FY 2010-11 vis-à-vis FY 2022-23 ............... 21
Figure 2: Comparative AT&C Losses of Gujarat with India’s ................................................................... 25
Figure 3: Individual Loss Levels of GUVNL Distribution Utilities ........................................................... 25
Figure 4: ACOS and ARR of Gujarat DISCOM ............................................................................................ 26
Figure 5: GUVNL DISCOM Cash Collection (Yearly & Monthly bases) .................................................. 27
Figure 6: Details of Centralised Processing Centre ....................................................................................... 29
Figure 7: Initiative for Reduction of AT&C Losses ...................................................................................... 31
Figure 8: DISCOM Wise Reduction of AT&C Losses ................................................................................... 34
Figure 9: Performance Parameters Post Takeover by TATA Power ........................................................... 35
Figure 10: Before and After pictures of Upgradation/Improvements ......................................................... 37
Figure 11: Impact on Key Components ........................................................................................................... 39
Figure 12: ACS-ARR Target vs Achievements ............................................................................................... 40
Figure 13: T&D Loss Trajectory of CESC Rajasthan DFs .......................................................................... 47
Figure 14: Actual Collection Efficiency and Trajectory of CESC Rajasthan DFs .................................... 48
Figure 15: Recommendation Matrix ................................................................................................................ 86

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List of Abbreviations
Abbreviation Full Form
ABR Average Billing Rate
ACoS/ACS Average Cost of Supply
ADMS Advanced Distribution Management Systems
ADR Automated Demand Response
AE Assistant Engineer
AI Artificial Intelligence
AMR Automated Meter Reading
APDCL Assam Power Distribution Company Limited
APSERC Andra Pradesh State Electricity Regulatory Commission
ARR Average Revenue Realisation
ASAI Average Service Availability Index
AT&C losses Aggregate Technical and Commercial Losses
BESL Bharatpur Electricity Services Limited
BEST Brihanmumbai Electricity Supply and Transport
BkESL Bikaner Electricity Supply Limited
CERC Central Electricity Regulatory Commission
CGRF Consumer Grievance Redressal Forum
CPC Centralised Processing Centre
CRPU Cash Realisation Per Unit
CSERC Chhattisgarh State Electricity Regulatory Commission
CSPDCL Chhattisgarh State Power Distribution Company Limited
CSR Corporate Social Responsibility
DF Distribution Franchisee
DGVCL Dakshin Gujarat Vij Company Limited
DISCOM Distribution Company
DRUM Distribution Reform Upgrade and Management
DT/DTR Distribution Transformer
DVB Delhi Vidyut Board
DVVNL Dakshinanchal Vidyut Vitaran Nigam Limited
EA Electricity Act, 2003
EBITDA Earnings Before Interest Tax Depreciation and Amortisation
EE Executive Engineer
ERP Enterprise Resource Planning
FY Financial Year
FOR Forum of Regulators
GETRI Gujarat Energy Training and Research Institute
GIS Geographical Information System
GUVNL Gujarat Urja Vikas Nigam Limited
HPERC Himachal Pradesh Electricity Regulatory Commission
HPSEBL Himachal Pradesh State Electricity Board Limited
HVDS High Voltage Distribution Systems
IIM Indian Institute of Management
IIT Indian Institute of Technology
IPCL India Power Corporation Limited
IPDS Integrated Power Development Scheme
IT Information Technology

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Abbreviation Full Form

JBVNL Jharkhand Bijli Vitaran Nigam Limited
JDVVNL Jodhpur Vidyut Vitaran Nigam Limited
JE Junior Engineer
JERC Joint Electricity Regulatory Commission
JGY Jyoti Gram Yojana
JVVNL Jaipur Vidyut Vitaran Nigam Limited
KEDL Kota Electricity Distribution Limited
Km Kilo meter
KPI Key Performance Indicator
kVA Kilo Volt Ampere
LT Low Tension
MePDCL Meghalaya Power Distribution Company Limited
MGVCL Madhya Gujarat Vij Company Limited
MoP Ministry of Power
MP Madhya Pradesh
MPERC Madhya Pradesh Electricity Regulatory Commission
MPMKVVCL Madhya Pradesh Madhya Kshetra Vidyut Vitran Company Limited
MPPaKVVCL Madhya Pradesh Paschim Kshetra Vidyut Vitran Company Limited
MPPoKVVCL Madhya Pradesh Poorv Kshetra Vidyut Vitran Company Limited
MSEDCL Maharashtra State Electricity Distribution Company Limited
MSP Minimum Support Price
MVVNL Madhyanchal Vidyut Vitaran Nigam Limited
MW Mega Watt
NBPDCL North Bihar Power Distribution Company Limited
NDPL North Delhi Power Limited
NE State North East State
NLDC National Load Dispatch Centre
NVIS New Vigilance information System
OMS Operation Management System
PF Power Factor
PGVCL Paschim Gujarat Vij Company Limited
PMDB Public Meter Distribution Box
PPP Public-Private Partnership
PSERC Punjab State Electricity Regulatory Commission
PSPCL Punjab State Power Corporation Limited
PuVVNL Purvanchal Vidyut Vitaran Nigam Limited
QR Code Quick Response Code
QRT Quick Response Teams
R-APDRP Restructured Accelerated Power Development and Reforms Programme
RDSS Revamped Distribution Sector Scheme
RE Renewable Energy
RERC Rajasthan Electricity Regulatory Commission
RLDCs Regional Load Dispatch Centres
RMU Ring Main Units
SAP System Application and Products
SBPDCL South Bihar Power Distribution Company Limited
SCADA Supervisory Control and Data Acquisition

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Abbreviation Full Form

SDO Sub-Division Officer
SERC State Electricity Regulatory Commission
SKY Suryashakti Kisan Yojana
SMS Short Message Service
SOP Standard Operating Procedure
TANGEDCO Tamil Nadu Generation Distribution Corporation Limited
TERC Tripura Electricity Regulatory Commission
TOTEX Total Expenditure
TPDDL Tata Power Delhi Distribution Limited
TPL Torrent Power Limited
TPSODL TATA Power Southern Odisha Distribution Limited
TSECL Tripura State Electricity Corporation Limited
TSNPDCL Telangana State Northern Power Distribution Company Limited
TSSPDCL Telangana State Southern Power Distribution Company Limited
UGVCL Uttar Gujarat Vij Company Limited
UPCL Uttarakhand Power Corporation Limited
UPI Unified Payment Interface
UT Union Territory
WG Working Group
YOY Year on Year

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 FOR Report on Discom Viability

1 Executive Summary
1.1 Background
The sustainability and financial viability of DISCOMs are critical for ensuring a
reliable and financially stable power sector in India. Recognizing the importance of
the issues faced by DISCOMs, the Forum of Regulators (FOR), during its 88th
meeting held on October 13, 2023, focused on the issues faced by the DISCOMs and
felt the need for exploring measures to make them financially stable in the long-
term. It was further deliberated that certain distribution utilities have been able to
successfully transform their businesses through proactive initiatives and therefore
it was decided that these best practices can be compiled and presented for others to
follow. Accordingly, the FOR constituted a Working Group to study factors
impacting the DISCOMs sustainability and to propose actionable recommendations.
This report consolidates the findings of the Working Group, offering an in-depth
analysis of financial and operational challenges, best practices, and specifies key
initiatives to overcome several challenges being faced.

The Terms of Reference for the Working Group were as follows:

1. Identify and analyze the factors impacting the sustainability of DISCOMs.
2. Examine the existing measures and suggest strategies for minimizing
operational losses and enhancing efficiency.
3. Analyze employee cost structures and make recommendations for
optimization of employee cost.
4. Suggest guidelines to reduce O&M and A&G Costs of DISCOMs.
5. Any other matter related and incidental to the above.

1.2 Approach and Methodology

The Working Group adopted a structured and data-driven approach to carry out
the tasks specified under the TOR. The approach and methodology included:
1. Case Studies: Best Practices adopted by various successful DISCOMs were
studied in detail.
2. Inputs from SERCs: Inputs from various State Electricity Regulatory
Commissions (SERCs) were obtained to gain a better understanding of the
factors impacting DISCOMs financial health.
3. Identification of Key Sustainability Factors: Based on the presentations and
inputs received, a thorough analysis was conducted to identify the key
factors that influence the long-term sustainability of DISCOMs.
4. Data Analysis: Detailed analysis of several important parameters such as the
ACS-ARR gap, AT&C losses, and employee expenses were carried out.
5. Benchmarking of Employee Cost: Benchmarking of employee and A&G
cost was caried out to help in optimizing the O&M expenses of various
DISCOMs.

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6. Recommendations: Based on the studies carried out, detailed

recommendations were made.

1.3 Case Studies

Several DISCOMS were invited to present their success stories. These included
Gujarat Urja Vikas Nigam Ltd. (GUVNL), Dakshin Gujarat Vij Company Limited
(DGVCL), Tata Power-Odisha DISCOMs., Tata Power Delhi Distribution Ltd.
(TPDDL), Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (MP
West DISCOM or MPPaKVVCL), Torrent Power Limited. In addition to these,
CESC, Rajasthan also provided their inputs on the initiatives that improved their
key performance parameters. Additionally, inputs were also received from some
State Electricity Regulatory Commissions (SERCs).

Based on the presentations made by various successful DISCOMs, and extensive

analysis, the key factors impacting the financial and operational viability of
DISCOMs were identified, which are as follows.
1. Aggregate Technical and Commercial (AT&C) Loss: High AT&C loss is a
direct loss and adversely affects the profitability of DISCOMs, thus
impacting the financial sustainability.
2. Cross-Subsidies: Higher cross-subsidies are an anti-thesis to cost-reflective
tariffs, and lead to migration of cross subsidizing consumers to open access,
resulting in revenue loss for DISCOMs.
3. Operational & Maintenance Costs: Rationalizing O&M costs through
benchmarking, automation, and workforce management is critical for
improving cost efficiency.
4. Regulatory Assets: The accumulation of regulatory assets places a heavy
burden on DISCOMs and should be completely eliminated.
5. ACoS-ARR Gap: The difference between the Average Cost of Supply
(ACoS) and Average Revenue Realized (ARR) remains a significant factor
affecting the financial health of DISCOMs.

1.4 Employee and A&G cost Benchmarking

Benchmarking of employee and administrative costs is required for better optimization
of cost. Accordingly, the employee cost structures were analysed to arrive at better
strategies for optimization of cost and develop guidelines to reduce O&M and A&G
costs.

In the benchmarking study, the best practices in the utilities from various regions were
considered to ensure a diverse mix. Further, for benchmarking, the latest available trued
up data were examined. Ten distribution utilities having trued-up data for FY 2022-23
were considered to maintain consistency. For reasons discussed in detail in the
subsequent sections of this Report, benchmarking was carried out in Rs./kWh of Sales
and Percentage of ACoS.

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Findings:
1. Employee costs in the range of around 5% of ACoS and combined Employee and
A&G Cost of around 6% of ACoS, is desirable. The costs above these ranges
need rationalization.
2. For some Distribution Utilities such as those of Punjab and Himachal Pradesh,
Terminal Benefits form over 50% of employee costs. This is significant and
requires State Government’s intervention as these are legacy issues and hence
should be taken over by the State Government either partially or fully.

1.5 KPI based Incentive Framework

Based on the key functions that the Distribution Utility is required to perform, a KPI
matrix has been developed. This matrix objectively specifies the weightage each KPI
activity carries and how the performance on these individual activities shall be
measured and then merged to derive a consolidated score.

It is further suggested that the State Regulators may mandate that any distribution
company achieving a minimum of 80%(Threshold) marks on KPI parameters, shall only
be eligible to earn incentives.

Once the utility has fulfilled the KPIs specified by the State Regulator, incentives shall
be allowed, and it is proposed that considerable portion of the incentive earned should
be shared among the employees of divisions/circle that have achieved their targets or
have contributed to achieving the KPIs.

Further, to make this mechanism self-sustainable, it is proposed that incentive be

allowed only if there is saving arising out of fulfilling of these targets specified by
the Commission.

1.6 Recommendations and Way Forward

Based on the study carried out several recommendations have been made in the Report.
A set of key recommendations that have been suggested are as follows. It is, however,
clarified that as each DISCOM operates under different operational conditions, not all
recommendations may be universally applicable.
A. Interventions for AT&C Loss Reduction
1. Implementation of HVDS and Aerial Bunch Conductors in high loss areas
2. Initiating Smart Metering in high loss areas/ high value consumers – Implement
Advanced Data Analytics tools for improved analysis and decision making
3. 100% metering of Connections
4. Energy Audit at DT Level
5. Network Strengthening - Reducing Overloading of Lines and Transformers

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6. Prepaid Meters and Automated Meter Reading in areas with low billing
efficiency
7. Facilitating Distributed Energy Systems
8. Feeder Segregation (wherever high agricultural Load/consumer)
9. Installation of Advanced Distribution Management, GIS, SCADA Systems
10. Re-validation of Assessment Formula wherever billing is being carried out on
assessment basis.
11. CSR Alignment with Loss Reduction Strategies - Building Synergy

B. Optimisation of O&M Cost

1. State Governments to either fully or partially takeover Terminal Benefits of
employees
2. Distribution Utilities to rationalise manpower based on the benchmark
3. Activity Based Outsourcing, especially those activities which are repetitive and
non-critical
4. Use of IT enabled Systems such as ERP/SAP for Asset Management to reduce
administrative costs

C. Optimising Human Resource

1. Continuation of Leadership (Managing Director) at the helm of affairs for at
least 3-4 years is critical to make progress
2. Focus on Manpower Capacity Development
3. Manpower Skill Audit and Rationalisation/Re-deployment
4. KPI/KRA based Employee Accountability and Incentivisation

D. Regulatory Support
1. Tariff Revision - Cross Subsidy Reduction - Regulatory Support for KPI/KRA
based Employee Benefit Scheme and liquidation of Regulatory Assets to ensure
sustainability of DISCOMs

Further, prioritization of the recommendations has been done in Chapter 7 of this

Report based on two critical parameters:
1. Capital intensity, and
2. Impact on DISCOM

1.7 Other Key Recommendation

Apart from the above, the following aspects need to be ensured for better performance
of any distribution utility:
1. Subsidy Management: Ensure timely subsidy payments to distribution utilities
and avoid structures that incentivize malpractice. For instance, subsidies should
not encourage consumers to manipulate consumption brackets.

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2. Recovery through Fixed Charges: Gradually increase recovery through fixed

charges, which should be higher than the current 15-20% to better cover fixed
costs and improve cash flow stability.
3. Continued Government Support: Ongoing debt restructuring, soft loans, and
grants are essential for capital expenditure, particularly under schemes like
RDSS. States should also help cover the impact of terminal benefits on utility
balance sheets.

The recommendations in this report provide a roadmap for addressing the financial and
operational challenges faced by DISCOMs. Implementation of these strategies will
ensure the long-term viability of the distribution sector.

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2 Introduction
2.1 Overview
The Forum of Regulators (FOR) was established through a notification issued on
February 16, 2005, in pursuance of the provisions outlined under Section 166(2) of the
Electricity Act, 2003 (EA or Act). The body includes the Chairperson of the Central
Electricity Regulatory Commission (CERC) and the Chairpersons of the State Electricity
Regulatory Commissions (SERCs). The Chairperson of the CERC is the Chairperson of
the Forum.

2.2 Functions of the Forum

The Forum undertakes a range of activities seeking to evolve consensus on regulatory
practices and governance in the power sector and reviews tariff orders for compliance
with the Electricity Act and Tariff Policies. The Forum also monitors subsidy accounting
under Section 65 of the Act, providing quarterly reports to relevant authorities.
Renewable energy purchase compliance is tracked. Additionally, the Forum
harmonizes regulations, establishes performance benchmarks, facilitates research,
promotes consumer interests, and encourages efficiency, economy, and competition in
the sector and works to ensure uniformity in approach on key issues across State
Electricity Regulatory Commissions thus ensuring regulatory certainty in the electricity
sector.
2.3 88th Meeting of Forum of Regulators and Constitution of Working Group
The FOR, in its 88th meeting held on 13.10.2023, discussed that the sustainability of the
DISCOMs is a matter of concern as they continue to operate at a loss and that focus
seems to be on addressing losses rather than improving efficiency. An example was
cited of Himachal Pradesh where the employee cost was exceptionally high, accounting
for about 33% to 35% of expenses and that the Commission’s approval was required for
new recruitments, except for technical positions, which has created friction between
DISCOMs and the Commission. It was also informed that additionally, there was a
trend of creating numerous divisions and subdivisions near residences, which adds to
the inefficiencies and further led to an increase in tariffs.

In view of these issues and after detailed deliberation, the Forum decided that a
Working Group (WG) may be constituted to study DISCOM viability with a special
focus on loss reduction, employee costs and other issues affecting the viability of the
DISCOMs. A benchmarking may be done for employee related costs and losses
depending on the topographical structure of the State. The minutes of the meeting of
the 88th Meeting of the FOR are annexed to this Report as Annexure-I.

Accordingly, the Working Group was constituted with the following composition:

1. Chairperson, MPERC – Chairman of the working group.

2. Chairpersons, HPERC, – Member
3. Chairpersons, CSERC, – Member

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4. Chairpersons, PSERC, – Member

5. Chairpersons, APSERC, – Member
6. Chairpersons, TERC, – Member
7. Chairpersons, RERC, – Member
8. Chairpersons, JERC (Goa & UTs), – Member
9. Member (Finance), CERC – Member

A copy of the order constituting the Working Group is enclosed as Annexure – II.

2.4 Deliberations of the Working Group

The first meeting of the WG was held on 21st June 2024 (minutes of meeting enclosed as
Annexure–III). The second meeting was held on 9th August 2024 (minutes of meeting
enclosed as Annexure–IV). The third meeting was held on 03rd October 2024 (minutes
of meeting enclosed as Annexure–V). Fourth and the final meeting to finalise the
recommendations was held on 25th November 2024 and 26th December 2024 (minutes of
meeting enclosed as Annexure–VI and VII respectively).

2.5 First Meeting of the Working Group

The discussion was focused on the Terms of Reference of the Working Group, which
included the following:
“
1. Identify and analyze the factors impacting the sustainability of DISCOMs.
2. Examine the existing measures and suggest strategies for minimizing operational losses
and enhancing efficiency.
3. Analyze employee cost structures and make recommendations for optimization of
employee cost.
4. Suggest guidelines to reduce O&M and A&G Costs of DISCOMs.
5. Any other matter related and incidental to the above.”

The FOR Secretariat also presented a background note highlighting an analysis of the
key factors affecting the viability of DISCOMs.

The Working Group suggested that the reasons for ACS-ARR gap be analysed in detail
and the best practices followed by a few progressive DISCOMs be studied for this
purpose. The Working Group also suggested benchmarking O&M costs based on
consumers served or volume of energy handled and assessing the impact of cross-
subsidy surcharge on the viability of DISCOMs. The WG also suggested to use IT tools
for data collection and to carry out analysis of tariff orders.

2.6 Second Meeting of the Working Group

The meeting commenced with a presentation by GUVNL highlighting best practices
adopted by them including strategies adopted for loss reduction, consumer engagement
and enhancing employee productivity through continuous training and development,
which resulted in improvement in the operational efficiency of DISCOMs of the State.

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The second presentation was made by TATA Power Delhi Distribution Limited and
Tata Power-Odisha DISCOMs, sharing their learnings, including - extensive use of IT
and other technological intervention, consumer engagement, aggressive replacement of
faulty meters, CSR activities in high loss areas, enhancing customer care services and
employee motivation and improvements in TPDDL as well as in the DISCOMs of
Odisha.

2.7 Third Meeting of the Working Group

The meeting started with a presentation by Madhya Pradesh Paschim Kshetra Vidyut
Vitaran Co Ltd. (MPPKVVCL) which provided an overview of the distribution and
retail supply of electricity in Indore and Ujjain. The presentation highlighted the impact
of adoption of Smart Meters and the newly installed billing system which was more
flexible and automated with features such as instant bill generation, remote
disconnection system, etc. Further, they highlighted the beneficial impact of employee
reward and recognition initiatives such as Sona chandi scheme.

The second presentation was made by Torrent Power, wherein the benefits of
underground distribution infrastructure, 100% consumer indexing and installation of
electronic meters at the consumer end was presented. The presentation also highlighted
the importance of even load balancing on transformers, increased density of
transformers and preventive maintenance using fully computerised Operation
Management System (OMS).
The WG also requested Torrent Power to provide more details on the loss reduction
initiatives adopted by it in Bhiwandi.

It was decided that the learnings from the best practices shared by different Distribution
utilities at meetings of working group be compiled by the FOR Secretariat, along with
the analysis of issues around the terms of reference of the Working Group to enable
finalisation of the recommendations at the next meeting of the group.

2.8 Fourth Meeting of the Working Group

During the fourth meeting of the working group, Representative from Madhya
Pradesh Madhya Kshetra Vidyut Vitaran Co. Ltd. (MP Central DISCOM) highlighted
the key issues being faced by all the Distribution utilities of the State of Madhya Pradesh
and shared their learnings and suggested focus areas for consideration of the Working
Group. The same was followed by a detailed presentation by the consultant assisting
the Working Group on the inputs received from DISCOMs and SERCs and the activities
carried out against the terms of Reference.

Some suggestions were made by the members of the Working group, and it was decided
that a Report be prepared based on the presentations made and suggestions of WG, and
the draft Report be circulated for consideration of the Working Group.

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In the fifth and final meeting of the WG, the Working Group adopted the Draft Interim Report
and endorsed the final report for feedback and comments from the FOR.

2.9 94th Meeting of FOR

The Report of the Working Group was presented before the FOR in the 94th meeting of
the FOR on 10th January 2025 outlining the key findings and recommendations in which
the Forum deliberated on its implications and the necessary course of action. It was
resolved that the respective States may undertake the required measures to implement
the recommendations aimed at enhancing the financial and operational viability of
DISCOMs. The Forum after suggesting the following , approved and adopted the
recommendations detailed in the subsequent section of this report and suggested that
the recommendation be forwarded to MoP and SERC’s for suitable action (minutes of
meeting enclosed as Annexure–VII-A)

1. Separate norms be explored for hilly States and NE States.

2. Increase the threshold KPI to 80%.

2.10 Objective of the Report

The monolithic structure of the State Electricity Boards (SEBs), over the period led to
inefficiency in operation and poor financial performance. Many electricity boards were
state-owned monopolies, with little competition or market pressure to improve
financial performance. Due to price controls and inefficiencies in pricing, SEBs
frequently struggled to cover the costs of generation, transmission, and distribution. As
a result, many SEBs accumulated huge debts, relied heavily on government bailouts,
and faced challenges in financing infrastructure upgrades or expansions. Their financial
health was often weak, with limited ability to attract private investment or raise capital
from markets.

Additionally, absence of clear financial accountability and lack of operational

autonomy, compounded the difficulties faced by the electricity boards. Operational
inefficiencies, such as poor management practices, outdated infrastructure, and high
technical and commercial losses, contributed to cost overruns and revenue shortfalls.
The financial position of SEBs was also affected by the limited ability to adapt to modern
technologies or innovative business models. Unbundling of the integrated, State-owned
monopolies into separate entities for generation, transmission, and distribution, was
seen as a necessary step to address these financial problems, promote competition, and
improve efficiency in the sector.

Post-unbundling, a few Distribution Utilities (DISCOMs) achieved notable financial

turnarounds through a combination of structural reforms, technological advancements,
and State Government support. Better tariff rationalization, improved billing and
metering systems, and investment in smart grid technologies helped in reducing
technical and commercial losses, thus increasing revenue realization. As a result, several

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DISCOMs, demonstrated a significant improvement in their financial health, reducing

their reliance on State subsidies and becoming more self-sustaining.

The objective of this report is to bring out the best practices that have been followed by
these progressive Distribution Utilities so that the same can be emulated by others. The
Report also tries to benchmark the employee and administrative costs associated with
the retail business, which in case of most of the loss-making distribution utilities are
beyond acceptable limits. Further, based on the deliberations of the Working Group and
inputs provided by various SERCs, the Report also aims to recommend strategies for
improving cost efficiency, enhancing operational performance, and ensuring long-term
sustainability of DISCOMs.

2.11 Approach and methodology

To meet the above stated objectives, a comprehensive strategy was designed to ensure
that the methodology is robust and effectively addresses the complex challenges
encountered by DISCOMs.
1. Case Studies of Successful DISCOMs: Series of presentations were made by
progressive DISCOMs, showcasing their major accomplishments and the
underlying factors that contributed to the significant improvements in
operational and financial performance. The presentation also flagged issues
being faced and areas of concern. These insights and initiatives shall serve as
valuable examples of best practices which have been tried and tested to
overcome operational and financial challenges.
2. Inputs and Suggestions from SERCs: Feedback was solicited from various State
Electricity Regulatory Commissions (SERCs). Based on the inputs received,
analysis was carried out to understand the key regulatory challenges that
DISCOMs face, including tariff structures, cross-subsidy management, and
other issues which are critical to ensuring a sustainable power distribution
system.
3. Identification of Key Sustainability Factors: Drawing from the case studies and
regulatory feedback, a comprehensive analysis was undertaken to identify the
critical factors influencing the long-term sustainability of DISCOMs. These
factors include those affecting financial health, operational efficiency, and the
effective management of cost structures.
4. Study of O&M and Employee Costs: A detailed examination of the O&M costs,
particularly Employee-related expenses and Administration & General (A&G)
expenses have been carried out. This includes benchmarking of these costs. This
analysis aims to establish some reference costs and provide some guidelines for
improving employee efficiency and optimizing costs across the sector.
5. Deliberation and Recommendations: Following the analysis, a set of targeted
recommendations are put forward to address the core challenges faced by the
DISCOMs. These recommendations have been discussed in detail to refine the
proposed solutions, ensuring that they are actionable and contribute to the

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overall enhancement of DISCOM operations and financial stability. Also, an

attempt has been made to grade the recommendations to enable prioritisation
starting with low-cost, low effort but high impact solutions.

2.12 Structure of the Report

This report is organized into following sections to comprehensively address the
challenges and offer solutions to ensure DISCOMs viability.
1. Executive Summary - The opening section provides a concise overview of the
report, detailing its purpose, highlighting key challenges faced by the DISCOMs,
summarising the findings, and outlining the recommendations and way
forward.
2. Introduction - This section sets the context for the study by suitably capturing
the genesis of this study. It outlines the study's objectives, and the methodologies
employed, including data collection, analysis frameworks, and approaches
adopted to assess challenges and to recommend solutions.
3. Background – This section provides a detailed background and the need for the
Study. It also details out the objective of the Study.
4. Case Studies of Successful DISCOMs – The section captures detailed insights
from the case studies of public and private DISCOMs such as GUVNL, Tata
Power, Torrent, and MP DISCOMs. These examples illustrate best practices in
operational efficiency, HR policy, financial management, and loss reduction
strategies.
5. Analysis of Key Challenges and their Financial Implications - This section
examines critical factors impacting DISCOM viability, including AT&C losses,
ACS-ARR gap, regulatory assets, cross-subsidies other related issues. Each
factor's operational and financial implications are analysed, providing a
foundation for targeted interventions.
6. Strategic Recommendations for Improvement – This section suggests
recommendations and highlights best practices that have yielded result in
reducing technical and operational losses, optimizing cost structures (Employee
and A&G costs), and other key factors responsible for short-term and long-term
sustainability.
7. Annexures - These include supporting documents, including minutes of
meeting, copy of presentations and other documents referred.

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3 Background
India's power sector has undergone significant transformation after the notification of the
Electricity Act, 2003. One of the significant reforms introduced by the Act was the
unbundling of the sector into three distinct verticals, i.e., Generation, Transmission, and
Distribution. This segregation was intended to introduce competition, enhance the
operational efficiency and improve financial viability of the power sector.

However, for various reasons, the financial condition of the distribution sector remains
precarious. It is, however, also observed that while some of the DISCOMs continue to reel
under heavy financial losses, there are a few DISCOMs who have shown financial
resilience and have managed to turnaround in the past decade. As illustrated in the
following graphs, as compared to 16 DISCOMs that booked profit in FY 2010-11, the
number of profitable DISCOMs increased to 35 in FY 2022-23.

Source: PFC report on “Performance of Power Utilities 2022-23”

Figure 1: Comparison of Profitability Status of DISCOMs FY 2010-11 vis-à-vis FY
2022-23

This progress underscores the impact of targeted interventions, policy measures, and
improved operational practices adopted by some of the DISCOMs. However, despite
this improvement, challenges persist, as 32 DISCOMs continue to operate under losses.
This underscores the urgent need for a deeper analysis of the strategies and practices
employed by the successful DISCOMs. Identifying and documenting these practices is
important so that other distribution utilities can learn and implement strategies to
improve their financial viability.

Several DISCOMs, which have managed to turn around have implemented innovative
approaches, including, inter alia, deploying advanced metering infrastructure and DT
level monitoring, technological upgrades, improvement in revenue collection through
consumer-centric initiatives, controlling theft, etc. By understanding the efficacies of
these initiatives, other DISCOMs can adopt similar strategies to address their challenges.

Regulatory certainty is a crucial factor in improving the financial viability of the

Distribution Utilities. Regulatory certainty fosters confidence among stakeholders,

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including consumers, investors, and financial institutions, which is critical for the long-
term viability of Distribution Utilities. A transparent regulatory framework is thus
crucial for enabling Distribution Utilities to plan and execute their operations
effectively, make investments, and manage risks.

Uniformity in regulatory practices across the country would minimize ambiguities, and
establish clear guidelines for tariff setting, revenue recovery, and operational
performance standards. To achieve this, it is advisable to synergistically align the
regulatory frameworks of individual States with the Electricity (Amendment) Rules,
2024, National Electricity Policy and Tariff Policy issued by Government of India, also
keeping in view the State specific scenarios and the best practices that have given results
in the past. It is also suggested that in the Rules, SERCs should be allowed the flexibility
to formulate Regulations keeping in view the State specific scenarios.

Apart from policy and regulatory measures, the financial viability of Distribution
utilities is highly dependent on their ability to reduce Aggregate Technical &
Commercial (AT&C) losses.

The AT&C losses of the distribution utilities have witnessed a significant decline, from
an estimated1 37% in FY 2001-02 to 15% in FY 2022-23. This achievement can be
attributed to the implementation of various Government Schemes such as Restructured
Accelerated Power Development and Reforms Programme (R-APDRP), Integrated
Power Development Scheme (IPDS), Ujwal DISCOM Assurance Yojana (UDAY),
Revamped Distribution Sector Scheme (RDSS) etc., which were designed with a specific
mandate to reduce AT&C losses through targeted interventions and technological
advancements.

However, despite this progress, challenges persist in the distribution sector, which
continues to incur substantial losses undermining the financial sustainability of the
sector and necessitating further reforms to address structural and operational
bottlenecks.

Therefore, the Forum of Regulators, in its 88th meeting held on 13th October 2023
deliberated on the issue of long-term sustainability of the DISCOMs and constituted the
Working Group. Based on agreed terms of reference decided by the WG and the
approach and methodology as already discussed, inputs of the Distribution Utilities and
SERCs have been taken and the consultant assisting the WG has also conducted an
independent analysis of ways to rationalise O&M expenses with a focus on Employee
and Administrative expenses. The Report also delves into detailed impact assessment
of key factors affecting DISCOM viability.

1 PFC Report on performance of Power Utilities.

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Based on this analysis, the Report provides a set of recommendations aimed at

addressing the challenges faced by DISCOMs and strategies for enhancing their
operational and financial performance.

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4 Analysis of Turnaround Strategies of Progressive

DISCOMs
The following progressive distribution utilities shared their achievements and
initiatives.
1. Gujarat Urja Vikas Nigam Ltd. (GUVNL) and Dakshin Gujarat Vij Company
Limited. (DGVCL)on behalf of Distribution Utilities of Gujarat.
2. Tata Power Company Ltd. and Tata Power Delhi Distribution Ltd.
3. Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited. (MP
West DISCOM or MPPaKVVCL) on behalf of the DISCOMs of Madhya
Pradesh.
4. Torrent Power Limited.

In addition to the above, Madhya Pradesh Madhya Kshetra Vidyut Vitaran Company
Limited. (MP Central DISCOM or MPMKVVCL) also provided suggestions and areas
of focus that can improve DISCOM viability. Similarly, CESC, Rajasthan has also
submitted initiatives taken by it to improve the financial position of the distribution
business in the District of Kota, Bharatpur and Bikaner in the State of Rajasthan where
it operates as Distribution Franchisee. The presentation is attached as Annexure-VIII
to this Report.

This section deals with the key achievements and initiatives of the above Distribution
Utilities which resulted in reduced gap between Average Cost of Supply (ACoS or
ACS) and Average Revenue Realization (ARR).

4.1 GUJARAT

4.1.1 Overview
The Gujarat Urja Vikas Nigam Limited (GUVNL) was incorporated as a Govt. of
Gujarat Company and owns six other companies (including generation, transmission
and distribution) w.e.f 1st April 2005, DGVCL, MGVCL, PGVCL and UGVCL have
become Subsidiary Companies of GUVNL.

As of 2023-24, the State distribution utilities of Gujarat had 150 lakh consumers in the
State and 62,000 Employees. On behalf of all the DISCOMs of the State, GUVNL
presented the performance of the State distribution utilities .

Before enactment of the Act, the State Electricity Board was incurring losses along with
supply constraints for its consumers. However, post enactment of Act in 2003, the State
was quick to unbundle the board, and since then, a series of progressive steps have
been taken to enable the distribution sector in the State to turn profitable. Based on the
inputs provided by GUVNL, and further analysis, the best practices and key initiatives

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followed by the State DISCOM have been brought out so that the same can be
considered for adoption by similar State distribution utilities.

4.1.2 Key Achievements

1. Comparative AT&C Losses of Gujarat with India’s
Gujarat's AT&C losses had decreased to 10.24% in 2022-23, showcasing a
consistent trend of outperforming the national average. A comparison of all-India
average AT&C losses vis-à-vis the quantum of loss of distribution utility of
Gujarat, is as shown in the following figure.

Source: GUVNL presentation at FOR

Figure 2: Comparative AT&C Losses of Gujarat with India’s

By 2022-23, Gujarat's DISCOMs had achieved remarkable reduction in AT&C

losses, demonstrating improved operational efficiency and better management
practices. DGVCL's losses dropped to an impressive 1.63%, MGVCL's to 9.29%,
UGVCL's to 9.35%, and PGVCL's to 18.31%. The individual loss levels of these
distribution utilities are as shown in the following figure.

Source: [Link]
Figure 3: Individual Loss Levels of GUVNL Distribution Utilities

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2. Average Cost of Supply (ACoS) and Average Revenue Realised (ARR)

It is further observed that the State has been able to achieve consolidated ACoS-
ARR surplus in the past years and is as shown in the following figure.

Source: GUVNL presentation at FOR

Figure 4: ACoS and ARR of Gujarat DISCOM

3. Cash Collection
The total cash collections by Gujarat DISCOMs in 2023-24, was Rs. 85,536 crores,
with a monthly collection of Rs. 7,128 crores. This reflects significant growth as
compared to 2016-17, when total cash collections were Rs. 39,079 crores, and
monthly collections amounted to Rs. 3,257 crores.

The increase of over 118% in total cash collections demonstrates notable progress
in revenue collection capabilities. Monthly collections have also more than
doubled during this period, indicating improved efficiency in cash flow
management. The consistent rise in cash collections reflects the impact of sustained
efforts to enhance customer interaction, improve payment mechanisms, and
reduce outstanding receivables. Stronger cash flows enabled GUVNL to maintain
financial stability, invest in infrastructure improvements, and deliver reliable
services to their consumers. Important Reforms undertaken by GUVNL are
summarised as under:

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Source: GUVNL presentation at FOR

Figure 5: GUVNL DISCOM Cash Collection (Yearly & Monthly bases)

4.1.3 The Turn-Around - How Reforms Helped Change?

1. Jyoti Gram Yojana (JGY)
The JGY, launched in September 2003, was aimed to address the issues of poor
power supply quality in Gujarat’s villages. The scheme involved the segregation
of 11 kV feeders into dedicated agricultural and non-agricultural lines. 90% of
fund, was to be given by Government of Gujarat ( GoG ) as Grants, provided 10%
will be contributed by the villagers. Within 3.5 years, the program covered 17,839
villages with 78,000 kms of new power lines, 2,257 dedicated feeders, and
thousands of transformer centres. As a result, Villages began receiving
uninterrupted power for non-agricultural uses, while farmers received 8 hours of
consistent electricity supply on daily basis. Success of the Scheme is attributable to
customer participation in an initiative aiming to reduce losses.

2. Suryashakti Kisan Yojana (SKY)

The SKY, was launched in July 2018 by the Gujarat government. Before SKY,
agriculture consumption accounted for 21.46% of Gujarat's electricity consumption
in 2017-18 but contributed less than 5% of the revenue, requiring significant
subsidies. Under SKY, grid-tied photovoltaic systems were installed on farmers'
lands, with a funding model involving 5% farmer contribution, 30% subsidies each
from State and central governments, and 35% through loans. Farmers benefited
from reliable grid-quality power for 8 hours daily, sold surplus solar energy at INR
7 per kWh, and gained full ownership of the systems after 7 years.

3. Financial Reforms
As part of strategic financial reforms, GUVNL adopted a centralized financial
management approach to optimise the electricity billing and payment processes.
Under this system, consumers pay their electricity bills directly to the Distribution
utility (DISCOM) and these payments are subsequently transferred to GUVNL,

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which serves as the central financial hub, utilizing optimum credit facilities from
banks to manage working capital effectively. The organization then systematically
distributes payments to all power suppliers, while also administering applicable
rebates.

4. Tackling AT&C Losses

Gujarat has successfully reduced its AT&C losses, achieving the loss level of
around 55% lower than the national average. This significant improvement is due
to rigorous vigilance, including the establishment of 16 dedicated police stations
specifically tasked to deal with power theft and related issues, proactive inspection
and disconnection drives, and creation of special courts to expedite legal
proceedings. Additionally, implementation of High Voltage Distribution Systems
(HVDS) has enhanced operational efficiency and reliability, while replacement of
mechanical meters with electronic meters, has improved metering and billing
process.

5. Upskilling Workforce
Recognising the importance of upskilling and reskilling its workforce, Gujarat
established the Gujarat Energy Training and Research Institute (GETRI) in 2006.
By FY 2005-06, over 620 training programs had been conducted, focusing on
technical skills, behavioural change towards customers, safety, and corporate
training. These initiatives were further supported by the United State Agency for
International Development (USAID) and the Distribution Reform Upgrade and
Management (DRUM) project. GETRI plays a crucial role in capacity building
through research and analysis, and has developed international tie-ups and
partnerships with academic institutions, research organizations, and institutions
working in the field of net-zero emissions. The institute also provides consultancy
services and organizes workshops, seminars, and events to ensure continuous
learning and engagement.

6. Infrastructure Development
To strengthen and modernise distribution infrastructure, significant investment
was made to implement Advanced Distribution Management Systems (ADMS)
and Smart Grid technologies for enhanced efficiency, responsiveness, and overall
performance of the strategic network upgradation system.

4.1.4 New Age Reforms

1. Centralised Processing Centre (CPC)
The CPC is designed to be a completely digital and paperless system, focused on
quick and efficient processing of tasks. Some of the notable CPC features include
integration with digital lockers for document management, a user-friendly "e-
Vidhyut Seva" portal, and the ability to complete tasks remotely without any office
visits. The system also provides real-time application updates and flexible
pre/post payment options.

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For example, the average time taken from payment to task completion, and from
task completion to final release, has been reduced by over 75%.

Source: GUVNL presentation at FOR

Figure 6: Details of Centralised Processing Centre

2. Consumer-Centric Initiatives
The DISCOMs have introduced consumer-centric initiatives, such as online bill
payment, digital customer service, and improved complaint resolution
mechanisms. These measures have enhanced the overall experience for
residential, commercial, and industrial consumers.

3. Leadership and Skill Development for Employee

The Leadership Development Program focuses on nurturing future leaders
through structured policies, fast-track promotions, and specialised training at
institutes like IIMs and IITs. Platforms such as the "Ideation Premier League"
encourage innovation, while initiatives such as “PAHAL” is an initiative designed
to recognise, celebrate, and motivate exceptional team members, both as
individuals and as a united force while, "Employee Connect" enhances
engagement and communication across the workforce.

4.1.5 Investments
With strong cash flows, GUVNL is making investments in strengthening transmission
and smart meters.
1. Transmission Strengthening
Gujrat is making significant investment of Rs 1 lakh crore towards the transmission
strengthening initiative.

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Specific targets include adding 1,000 new substations and 12 substations of 765 kV
that can operate at higher voltages, as well as extending the total transmission line
length to 55,000 circuit kilometres. These upgrades to the grid infrastructure were
intended to increase transmission capacity, efficiency and improve grid stability.
Additionally, the plan emphasised incorporating technological advancements into
the transmission network. This suggests the adoption of modern, cutting-edge
solutions to modernise and optimise the power distribution system in Gujarat.

2. Revamped Distribution Sector Scheme (RDSS)

RDSS adopts the TOTEX Model, merging capital and operational expenditures for
resource allocation and balancing long-term investment with operational needs. A
key initiative is the large-scale deployment of 1.65 crore smart prepaid meters in
two phases to improve billing efficiency and customer engagement.
Additionally, metering of distribution transformers above 25 kVA ensures better
energy flow monitoring. The scheme allocates Rs. 3,693 Crore for infrastructure
modernisation, Rs. 5,933 Crore for loss reduction, and Rs. 10,602 Crore for smart
metering, aiming to enhance reliability and reduce losses in Gujarat's distribution
network.

4.2 TATA Power

4.2.1 Overview
Tata Power operates across various segments of the power sector, including
generation, transmission, and distribution. As of 2024, Tata Power's distribution
operations are across multiple regions, including Delhi, Mumbai, Ajmer, and four
regions in Odisha. The company serves over 12.5 million consumers, making it the
largest private distribution player in the country in terms of consumer numbers. Tata
Power operates under multiple frameworks, such as licensee operations (e.g.,
Mumbai, Delhi, and Odisha) and public-private partnerships (Ajmer distribution
franchise).

The past record shows that at the time of taking over distribution supply, the supply
area was facing lot of challenges in Delhi and Odisha, which was characterised by poor
quality of supply, high AT&C loss, faulty/unmetered connections resulting in low
Collection efficiency, Billing efficiency and Revenue recovered per unit etc. With
several initiatives, the company was able to transform its operation and turn
Distribution Utilities into a profitable business. In view of its achievements in multiple
regions, TPDDL and TATA presented their key achievements and their
process/initiatives .

4.2.2 Tata Power Delhi Distribution Limited (TPDDL)

Following the unbundling of the erstwhile Delhi Vidyut Board (DVB), TPDDL
(erstwhile North Delhi Power Limited (NDPL)) is a joint venture between Tata Power
and the Government of National Capital Territory of Delhi wherein the majority stake

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is held by Tata Power. The company started its operations on July 1, 2002 and serves
approximately 1.2 million registered consumers with a peak load of around 1,350 MW,
operating across an area of 510 square km.
[Link] Key Achievements of TPDDL
1. AT&C Losses
TPDDL has achieved a significant reduction in AT&C (Aggregate Technical and
Commercial) losses over the years. In FY 2002-03, during the takeover from DVB,
the losses were as high as 53.1%, indicating inefficiencies in technical and
commercial operations.
With the implementation of various strategies as discussed subsequently, these
losses decreased to 5.9% in FY 2023-24. The utility exhibited significant
improvement and outperformed the AT&C target of 6.91% specified by Delhi
Electricity Regulatory Commission.

2. System Reliability
TPDDL has improved its operational performance from July 2002 to March 2024.
System reliability – Average Service Availability Index (ASAI) has increased
from 70% to 99.9% while transformer failure rates have dropped from 11% to
0.68%. The network length has been expanded significantly from 6,750 km to
14,108 km ensuring improved coverage and reliability. Additionally, peak load
capacity has increased from 930 MW to 2,218 MW, and streetlight functionality
has surged from 40% to 99.6%.

3. Impact on Key Components.

TPPDL has submitted that due to implementation of few key initiatives, several
key performance parameters improved drastically. The initiatives taken along
with performance parameters are shown in the following figure.
Figure 7: Initiative for Reduction of AT&C Losses

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As can be inferred from the above, the distribution utility was able to achieve the
following;
a) Collection Efficiency: The graph shows the collection efficiency before
and after the electronic meter installation. The collection efficiency has
improved from around 30% to 100%.
b) AT&C Losses: The AT&C losses have shown a decreasing trend due to
various initiatives such as electronic meter installation, theft control,
upgradation of infrastructure, energy audit at DT level etc., taken by
TPDDL, which resulted in a significant decrease in losses from around
53% to 6% in Delhi.
c) Revenue Collection: The revenue collection has shown a major
improvement following the electronic meter rollout, theft control and
automatic meter reading for high revenue consumers etc.

[Link] Major Initiatives

TPDDL has achieved significant milestones through various projects aimed at
improving efficiency, reducing losses, and ensuring better service delivery. The
strategies and their implementation methodologies are as follows:

1. Reduction of Aggregate Technical and Commercial (AT&C) Losses

a) Carrying out regular energy audits up to the Distribution Transformer (DT)
level.
b) Introduction of Automated Meter Reading (AMR) systems for high-revenue
consumers,
c) Community engagement and aggressive enforcement to combat theft.
d) Adoption of a smart grid system, including High Voltage Distribution
Systems (HVDS) and LT Aerial Bunched Conductors for enhanced efficiency
and safety.
e) Reduction in overloading of distribution infrastructure through capacity
augmentation.

2. Reliability and Network Modernization

TPDDL focussed on enhancing system reliability by upgrading infrastructure,
such as replacing outdated transformers to maintain service during repairs.
Safety and reliability were improved through fencing substations and installing
Ring Main Units (RMUs) due to which it was able to achieve 99.9% system
availability, suggesting a robust and modernized network.

Further, the Automated Meter Reading (AMR) system for high revenue
consumers was adopted to transmit real-time energy data to a centralized
platform. It integrates with business applications like SAP for accurate billing,
tamper detection, and operational management which minimizes manual

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intervention, enhances energy tracking, reduces losses and improves overall

efficiency.

3. Technology Advancement
Advanced technology played an important role in improving the operational
parameters, including AT&C losses. TPDDL has installed over 4.33 million smart
meters, promoting efficient energy management. GIS mapping was also adopted
for consumer indexing, asset tracking, and network planning, while SCADA
systems enabled centralized control and real-time monitoring and outage
management system.

4. Consumer Engagement
TPDDL established special consumer groups to address challenges in slum
clusters, offering outreach programs, customer handholding, and energy dues
facilitation. The company improved customer experience by reducing new
connection energization time from 51.8 days in 2002 to 5.57 days by 2024 and
achieving a consumer satisfaction index of 97%.

5. Societal Impact and CSR Alignment

TPDDL has aligned corporate social responsibility (CSR) initiatives with its
business goals, creating sustainable community-focused programs. Women from
slum areas were engaged as brand ambassadors, fostering trust and reducing
losses in challenging regions.

6. Key Policy Initiatives

TPDDL has advocated for regulatory reforms such as introducing Power
Purchase Adjustment Charges and Regulatory Deficit Surcharges to address
financial deficits. These initiatives, recognized by the Delhi Electricity Regulatory
Commission (DERC), aim to ensure timely recovery of cost of supply.

4.2.3 Tata Power – Odisha DISCOMs

Between 2020 and 2021, Tata Power successfully secured the bid to manage the
operations of all four power distribution utilities in Odisha through a public-private
partnership (PPP) model. As part of the initiative, four entities were established under
a joint venture with the Odisha State government, with a 51:49 ownership structure,
with majority of stake being held by Tata Power. These entities include Tata Power
Central Odisha Distribution Ltd (TPCODL), Tata Power Southern Odisha Distribution
Ltd (TPSODL), Tata Power Western Odisha Distribution Ltd (TPWODL), and Tata
Power Northern Odisha Distribution Ltd (TPNODL).

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[Link] Key Achievements

1. AT&C Losses
Tata Power has achieved a significant reduction in AT&C losses after the
takeover post FY 2020-21 and FY 2021-22. In FY 2017-18, the losses were in the
rage of 30%-40% across the four distribution utilities, indicating inefficiencies in
technical and commercial operations.

With the implementation of various strategies as discussed subsequently, these

losses decreased to 9%-16% by FY 2024-25. Efforts to reduce these losses include
infrastructure upgrades such as installing advanced metering systems, replacing
old and inefficient transmission equipment and, strengthening the distribution
network. Significant amount of capital expenditure was infused by Tata Power
after the takeover for upgradation of the existing infrastructure. Additionally,
improved billing systems, incentivising employees through appropriate reward
system including promotions and increased vigilance against power theft have
also played crucial roles in bringing down the AT&C losses in the region.
A brief snapshot of the DISCOM-wise reduction in AT&C loss is given below:

Figure 8: DISCOM Wise Reduction of AT&C Losses

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2. Impact on Key Components.

Due to implementation of few key initiatives, several key performance parameters
improved drastically. Post takeover by Tata Power, the performance parameter is
shown in the following figure.

Figure 9: Performance Parameters Post Takeover by TATA Power

As can be inferred from the above, the distribution utility was able to achieve the
following;
a) Revenue: The revenue collection has shown a major improvement post takeover
by Tata Power, which has increased from Rs.9869 Crore in FY 2018-19 to Rs.18,999
Crore in FY 2024-25.
b) EBITDA: A remarkable turnaround was achieved, with EBITDA increasing from
a deficit of Rs.1,154 Crore in FY 2018-19 to a surplus of Rs.2,086 Crore in FY 2024-
25.
c) PAT: Profit After Tax (PAT) showed a significant improvement from a loss of
Rs.1,562 Crore in FY 2018-19 to the estimated profit of Rs.540 Crore in FY 2024-25.
d) O&M Cost: The operational cost per kWh reduced from Rs.1.66 in FY 2018-19 to
Rs.1.47 in FY 2024-25.

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e) Cash Surplus: The DISCOMs moved from a cash deficit of Rs.1,562 Crore in FY
2018-19 to an estimated surplus of Rs.718 Crore in FY 2024-25.
f) ACOS vs ABR: Post takeover, the Average Cost of Supply (ACOS) vs Average
Billing Rate (ABR) gap narrowed, with ABR closely aligning with ACOS,
improving financial viability

[Link] Major Initiatives

Tata Power – Odisha DISCOMs have achieved significant milestones through
various projects aimed at improving efficiency, reducing losses, and ensuring better
service delivery. The strategies and their implementation are given below:
1. Capital Investment and Network Reliability:
Tata Power committed over Rs.5600 Crore in capex to strengthen the distribution
network in 5 years, supported by a Rs.3000 Crore grant from the Odisha
government. The investment focused on modernizing and upgrading the
distribution network to enhance system reliability, reduce losses, and ensure
uninterrupted power supply. The measures are as follows:
a) Network Upgrades: Augmentation of transformers and installation of Ring
Main Units (RMUs) to improve fault management and load distribution.
b) Technological Advancements: Implementation of automation systems like
SCADA for real-time remote monitoring, thermo-vision scanners for
inspection, and drones for infrastructure maintenance.
c) Metering Improvements: Replacement of defective meters with smart
meters, ensuring transparency and accurate energy accounting.
d) Safety and Load Growth: Enhanced substation protection, including
fencing and replacement of outdated circuit breakers, supports increasing
energy demand while maintaining safety standards.
e) Outage Reduction: Introduction of trolley-mounted substations for rapid
deployment during outages to minimize service disruption.

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A brief snapshot of the same is as below :

Figure 10: Before and After pictures of Upgradation/Improvements

2. Operational Efficiency and Loss Reduction:

The Tata Power-DISCOMs have undertaken efforts to reduce AT&C losses,
achieving a reduction from approximately 29.45% in FY 2021 to 18.79% in FY
2024. In addition to the metering infrastructure, initiatives like de-hooking,
reduction in provisional billing and targeted collections have resulted in
improved cash flow.

3. Technological Adoption:
Advanced systems such as SCADA for centralized power system control, smart
metering for energy transparency, GIS for network mapping, and drone-based
inspections were implemented to modernize operations. Additionally,
initiatives like Advanced Distribution Management Systems (ADMS) and
thermo-vision scanners ensured efficient and reliable network management.

4. Customer Experience Enhancement:

Tata Power established 24/7 call centres, digital payment solutions, and
customer care centres. Programs like "Gaon Chala Camps" and SMS-based
outage communication improved customer engagement. Over 35% of bills are
now paid digitally, with a Consumer Satisfaction Index exceeding 90%.

5. Employee Welfare:
A robust welfare program was introduced, including the Stagnation Promotion
Policy, group health insurance, and enhanced working environments. Tata
Power also emphasized inclusivity by recruiting from local communities,
including ex-servicemen and women self-help groups.

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6. Societal Engagement and Electrification:

Initiatives such as "Mission Cheetah" brought unbilled rural consumers into the
billing net. The establishment of Bidyut Seva Kendras extended service outreach,
while arrear collection drives helped recover Rs.1762 Crore, exceeding initial
targets.

These technology-driven and other initiatives have collectively resulted in

improving the reliability, transparency, and operational efficiency thereby
ensuring sustainable growth and profitability in operations.

4.3 MP DISCOMS

4.3.1 Overview
Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Limited (MPPKVVCL)
was established through an order issued on 1 July 2002 and it is fully owned by the
Government of Madhya Pradesh and incorporated under the Companies Act, 1956. As
of 2024, MPPKVVCL has over 1,490 - 33/11 kV substations and 19,964 km of 33 kV
lines. The distribution network includes 3.15 lakh distribution transformers (DTRs)
and 1,38,103 km of 11 kV lines. The company serves 61.00 lakh consumers across 15
circles and 55 divisions of the State, reflecting the scale and coverage of its power
distribution system.

The past record shows that the DISCOM was facing a lot of challenges pertaining to
AT&C loss characterised by low Collection efficiency, Billing efficiency and Revenue
per unit etc.

4.3.2 Key Achievements

1. AT&C Losses
MPPKVVCL has achieved a significant reduction in AT&C (Aggregate Technical
and Commercial) losses over the years. In FY 2015-16, the losses were recorded at
25.26%, indicating inefficiencies in technical and commercial operations. With the
implementation of various strategies, as discussed subsequently, these losses
steadily decreased to 12.6% in FY 2022-23 and by FY 2023-24, these losses further
dropped to around 10.88%. The utility exhibited significant improvement and
outperformed the AT&C target of 16.09% specified under the RDSS (Revamped
Distribution Sector Scheme).

2. Impact on Key Components.

Due to implementation of few key initiatives, several performance parameters
improved drastically. A comparison of these performance parameters is as shown
in the following figure.

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Figure 11: Impact on Key Components

As can be inferred from the above, the distribution utility was able to achieve the
following;
a) Billing Efficiency: The graph shows the billing efficiency before and after the
smart meter installation. In most regions, the billing efficiency has improved after
the smart meter deployment, with increases ranging from around 67% to 91% in
Indore.
b) AT&C Losses: The AT&C losses have shown a decreasing trend after smart meter
installation with losses dropping from around 46% to 9% in Indore and from 39%
to 9% in Mhow.
c) Collection Efficiency: The collection efficiency has improved in all regions after
the smart meter implementation. In Indore, collection efficiency increased from
93% to 100%, while Mhow and Khargone have seen the most significant
improvement in collection efficiency from 80% to 100% and from 94% to 103%,
respectively.
d) CRPU: The CRPU (Cost to Revenue per Unit) metric has shown a major
improvement following the smart meter rollout, reflecting enhanced operational
efficiency and effective cost management.

3. ACS-ARR Target vs Achievements

Due to improvement in its operations and loss reduction, the Utility managed to
rapidly reduce the ACS-ARR gap in the recent years. The ACS-ARR target (As per
RDSS) and actual performance by MPPKVVCL over the last four years is as shown
in the following graph.

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Figure 12: ACS-ARR Target vs Achievements

The above graph shows a marked improvement in the DISCOM’s performance in the
later years. For FY 2023-24, the target ACS-ARR gap was set at Rs. 0.35, and
MPPKVVCL turned around its business achieving ACS-ARR surplus of Rs. 0.33 which
is significant considering that in FY 2020-21 there was huge gap of Rs. 1.47/kWh.

4.3.3 Major Initiatives

MPPKVVCL has achieved significant milestones through various projects aimed at
improving efficiency, reducing losses, and ensuring better service delivery. Some of
its strategies and implementation are given below:

1. Smart Meter Project

The smart meter deployment has enabled the utility to build a state-of-the-art data
analytics engine that can generate 63 types of analytical reports. This data-driven
approach allows the utility to gain deeper insights into its operations and make
more informed decisions. The smart meter implementation led to a 13.63% increase
in the average monthly units billed, while the average monthly per-consumer
electricity bill has improved by 21.46%. The smart meters have identified 18,196
cases of aberrations, which have resulted in additional billing of Rs. 21.96 Crores.
This showcases the utility's ability to detect and address instances of energy theft
or anomalies through the smart metering system. The smart meters have allowed
the utility to impose PF (Power Factor) penalty amounting to Rs. 7.46 Crores and
provide PF incentive of Rs. 25.68 Crores, highlighting the utility's efforts to
encourage consumers to maintain optimal power factor and improve energy
efficiency. The smart meter infrastructure has enabled the utility to successfully
carry out 6.57 Lacs of remote reconnections and disconnections, amounting to
around Rs. 308.63 Crores in recovered arrears. The project has facilitated the
conversion of 3,707 smart meters into net meters, with a connected load of 25.9
MW. It has also started a door-to-door revenue collection process, offering on-the-
spot receipts through a mobile app, making payments more efficient for
consumers.

2. Feeder Separation

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Under this project, MPPKVVCL successfully separated the supply of electricity to

agricultural and non-agricultural consumers through dedicated feeders. This
initiative has shifted agricultural demand from peak to off-peak hours, leading to
power purchase cost savings and a reduction in AT&C losses. As a result, the
average supply hours for non-agricultural feeders reached 23 hours and 39
minutes, while agricultural feeders saw an average of 9 hours and 34 minutes of
supply.

3. Revenue Collection
To improve revenue collection, MPPKVVCL monitors feeder-wise Revenue Per
Unit (RPU) and develops targeted strategies to improve it. A focused effort has
been made to recover old arrears through measures like Japti/Kurki actions and
bank account seizures.

4. New Vigilance information Systems (NVIS)

The New Vigilance Information System is an advanced digital platform designed
to enhance the vigilance and enforcement operations and improve overall
efficiency in electricity distribution. The system enables real-time monitoring and
actionable insights to address irregularities, making it easier to identify and
mitigate losses. By integrating with smart metering infrastructure and advanced
analytics tools, NVIS strengthens the DISCOM ability to uphold compliance,
optimize resource allocation, and enhance customer trust through improved
service delivery, loss reduction and reduced power theft incidents.

5. Rental DTR scheme

This has been introduced for temporary agricultural consumers. The company also
identifies irrigation DTRs with no temporary connections to prevent unauthorized
usage and provides irrigation power supply during off-peak hours to optimize the
system and reduce losses.

6. Customer Satisfaction & Employee Motivation

The company has implemented multiple measures such as SMS-based
communication for outage notifications and bill sharing via WhatsApp. An
automatic compensation mechanism ensures that consumers are paid if the
company fails to meet guaranteed performance standards. In FY 2023-24,
MPPKVVCL conducted 2,467 consumer awareness campaigns covering various
topics. Additionally, it offers multiple payment options, including UPI, net
banking, RTGS, checks, and offline counters. Consumers are also rewarded with
incentives for prompt and online payments.

7. Employee Welfare Schemes

To motivate its employees, MPPKVVCL has introduced several initiatives,
including free health checkups through its AROH program, aimed at improving

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employee well-being. The company also runs the "Sona Chandi" scheme, where
employees such as SE, EE, AE, and JE are recognized with certificates and gold or
silver coins for outstanding performance in areas like revenue collection, AT&C
loss reduction, and bill collection.

4.4 TORRENT POWER LTD.

4.4.1 TPL- Ahmedabad

In 1997, the company acquired the Ahmedabad Electricity Company (AEC) by
purchasing the Gujarat government’s 28.89% stake, forming Torrent Power AEC
Limited. The utility has transformed the operations into one of the top-performing
power entities with significant improvements in operational efficiency and reliability
of supply.
[Link] Key Achievements
1. System Reliability - In 1998, the system average interruption frequency index
(SAIFI) was 46.30, indicating a high number of outages per year, Torrent Power's
efforts have resulted in a significant improvement, with the SAIFI reduced to
only 1.00 in 2024. Similarly, the system average interruption duration index
(SAIDI) has decreased from 43.21 hours in 1998 to just 0.26 hours in 2024,
showcasing the company's effort in minimising the duration of outages.

2. Distribution Transformers - In 1998, the number of distribution transformers

(DTs) was limited to 3,032, with a total capacity of 1,037 MVA. By 2024, the
number of DTs has increased to 9,517, with a total capacity of 4,424 MVA. The
substantial expansion and capacity developments are done to improve the
distribution network's efficiency and to accommodate the growing energy
demands in Ahmedabad.

3. Distribution Network – The number of 11 kV feeders has increased from 280 in

1998 to 1,470 in 2024, a significant expansion that enables the company to
distribute power more effectively and efficiently.

4. Energy Demand - The maximum demand has increased from 601 MW in 1998 to
1,834 MW in 2024, reflecting the rising energy needs of the region. Additionally,
the number of consumers has grown from 9.79 lakhs in 1998 to 20.99 lakhs in
2024, underscoring the company's ability to meet the expanding energy
requirements of Ahmedabad's growing population.

5. Collection Efficiency - In 1998, the collection efficiency stood at 92%, while in

2024, it has reached 100%.

6. AT&C Loss – The losses have significantly reduced from 19.04% in 1998 to just
4.18% in 2024.

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[Link] Major Initiatives

TPL-A has primarily focussed on the following three critical areas:
1. Reliability & Quality of Supply
2. Customer Services
3. System Efficiency

1. Reliability & Quality of Supply

With a focus on reducing power shortages and improving its network by
increasing capacity and revamping the distribution system, it had
undertaken initiatives like transitioning from overhead networks to
underground systems, and by adopting condition based monitoring systems
to ensure reliable electricity delivery. Focus areas include reliability
parameters, redundancy at critical voltage levels (33 kV and 11 kV), and
addressing issues like underground network failures and repeated fuse-off
complaints. As a result, SAIFI and SAIDI parameters have improved
considerably.
(a) "Meter to Cash" system was to optimise its revenue management and
enhance operational performance.
(i) The metering system emphasises tamperproof metering, rigorous
installation practices, and a specific focus on high-value
consumers to ensure accuracy and reduce energy theft.
(ii) The billing process is managed through an ERP-based system
with pre- and post-auditing mechanisms, close monitoring, and
comprehensive consumer indexing, ensuring transparency and
accountability.
(iii) On the revenue management front, the company has
strengthened customer touchpoints, enhanced its legal
framework, and eliminated external interferences to improve
collections and reduce losses.

In 1998, the collection efficiency stood at 92%, while in 2024, it has reached
100%.
(b) Revamping of Distribution Infrastructure: The company has upgraded
its distribution infrastructure by relieving overloaded feeders,
implementing reactive power compensation, adding feeder and
distribution transformer (DT) capacity, and reinforcing the network to
ensure uninterrupted and efficient power supply. These system upgrades
have also significantly improved the reliability and efficiency of power
distribution and has catered to increasing demand.

2. Customer Services
The company has implemented customer-centric initiatives through tools
such as Customer Relationship Management System and 24x7 Call Centres.
It has ensured proper outage management, transparent procedures, and
convenient customer services, including extended working hours. The

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performance is measured through metrics such as metering complaints,

achieving customer perception targets, and improving IT implementation for
better service delivery.

3. System Efficiency
Efforts to improve system efficiency includes identifying power leakages,
implementing advanced Meter-to-Cash systems, and ensuring accurate
metering while replacing defective meters. It has focussed on revenue
protection, assurance systems, and expediting legal connections or load
extensions. Key performance indicators involve monitoring meter accuracy,
identifying distribution transformers (DTs) with high losses, addressing DOE
cases, and balancing network loading.

4. Technological Advancement
Torrent Power has implemented the following initiatives to improve the
operational efficiency and financial viability of its distribution utility .
(i) Automated Meter Reading (AMR) system for High-Tension (HT)
consumers : This system integrates energy meters with modems and
GPRS technology to enable real-time data transmission. It connects HT
consumers, solar plants, and captive power plants to a centralised data
analysis platform. The data is processed and integrated with business
applications like SAP for billing, tamper detection, and operational
management. This ensures accurate energy usage tracking, minimises
manual intervention, and supports proactive issues to improve efficiency
and reduce energy losses.
(ii) Mobile App for Android and iOS platforms which is designed to improve
customer convenience : The application provides features such as easy bill
payment, instant complaint registration for power outages, appointment
booking, and consumption monitoring through graphs. Customers can
also verify employee details for on-site visits and provide feedback. This
user-friendly app ensures better service delivery, increases transparency,
and strengthens customer engagement, ultimately improving revenue
collection.
(iii) Web portal is to provide end-to-end digital solutions. Customers can log
in to manage their accounts, pay bills, view consumption trends, and
request various services online. With over 6 lakh accounts created and
approximately 78% of customers paying online, the portal significantly
reduces manual processes. It also offers attractive discounts through
partnerships with payment platforms and processes digital service
requests, ensuring seamless interaction with customers while improving
collection efficiency.
(iv) Vigilance and enforcement strengthened distribution utility’s efficiency
through non-discriminatory enforcement, energy audits, intelligence

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gathering, and removal of illegal connections and unauthorised wires,

thereby reducing theft and pilferage.

These technology-driven initiatives have collectively resulted in improving

reliability, transparency, and operational efficiency thereby ensuring
sustainable growth and improved customer satisfaction.

4.4.2 TPL-Bhiwandi
Torrent Power Bhiwandi is a Distribution Franchisee (DF) and commenced its
operation at Bhiwandi Circle of MSEDCL on 26th Jan 2007. Initially, 10-year agreement
was signed (January 26, 2007, to January 25, 2017) and was successfully completed. It
was further renewed for another 10 years (January 26, 2017, to January 25, 2027).

At present, the utility is dealing with 3.95 Lakh consumer base, with Distribution Tr.
Capacity of 1,355 MVA and Power Tr. Capacity of 1,085 MVA.

At the time of takeover, Bhiwandi Circle was facing severe challenges in its power
distribution system, such Aggregate Technical and Commercial (AT&C) losses of
58%, mandatory load shedding of 6 hours daily and additional distress load shedding
due to a 300 MVA deficit in the Extra High Voltage (EHV) network. The transformer
failure rate was alarmingly high at 40%. Unregistered customers added to
inefficiencies and the supply reliability was poor, leading to frequent appliance
failures.
[Link] Key Achievements
The power distribution landscape in the Bhiwandi circle has undergone a remarkable
transformation since takeover by Torrent Power. Compared to the position in 2007
, the utility has shown improvement in various parameters as below :
Till Jan 2007 As of Variance w.r.t
Parameters UoM
(Takeover) FY 2023-24 takeover
T&D Loss % 48.6 9.64 (38.96)
Collection Efficiency
% 68.29 100.41 32.12
(incl. Subsidy)
AT&C Loss (incl. Subsidy) % 64.9 9.27 (55.63)
Power Availability % 75 99 25
HT SAIFI Nos. 383.3 33.93 (91.15)
HT SAIDI Hrs. 201.6 33.32 (83.47)
DT Failure Rate % 40 0.74 (39.22)

[Link] Key Initiatives

1. AT&C Loss Reduction - Strengthening Network Efficiency and reliability by
modernising outdated and theft-prone infrastructure. Overhead lines were
replaced with Underground systems to reduce faults and improve safety.
Measures to protect networks, such as introducing Medium Voltage Covered
Conductors (MVCC) have improved system reliability. Advanced technologies,

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including SCADA systems, RMUs, auto-reclosers, IoT-enabled Transformer

Monitoring Units, and Fault Passage Indicators (FPI), were deployed to optimise
performance and address operational challenges effectively.
2. Transforming Metering, Billing, and Consumer Management - Metering
systems were upgraded to improve accuracy and billing efficiency. Under the
Ujjwal Bhiwandi Abhiyan (UBA), 1.25 lakh unauthorised connections were
legalised, significantly reducing losses. Feeder-level tracking and theft deterrence
were implemented to ensure better revenue collection and integrate
unauthorised consumers into the system.
3. Operational Excellence and Rural Outreach – This was addressed by
streamlining operations through digital tools like Field Force Applications and
Digital Mapping Systems. To extend services to remote areas, mobile energy bill
collection vans were introduced. Additionally, a NABL- Accredited Meter
Testing Laboratory was established to maintain high standards in metering
equipment and ensure precision in operations.
4. Customer-centric Initiatives - The following steps were taken for customer
satisfaction in the Distribution Franchise (DF) areas:

a) State-of-the-Art Service Centres:, Digitally enabled customer service centres

were strategically located to cater to the needs of various consumers .
b) 24/7 Call Centre Support: A round-the-clock call centre with IVRS handles
customer complaints and queries seamlessly.
c) Digital Engagement Platforms: TPL offered multiple digital platforms such
as a website, mobile app, and WhatsApp for queries, complaints, and
payments, with diverse online payment options such as net banking,
credit/debit cards, and payment wallets.
d) Proactive Customer Updates: Customers receive timely notifications about
meter readings, billing, outages, safety, and tariff information through SMS,
banners, and digital platforms.
e) Community Outreach: TPL engaged through society camps, new connection
camps, and interactive sessions such as e ‘SAMVAD,’ fostering better
communication and trust with consumers.

4.5 CESC , RAJASTHAN

CESC, was selected as the Distribution Franchisee in Rajasthan through competitive
bidding. The company operates through its wholly-owned subsidiaries, which
manages distribution in key regions of the State. The details of these subsidiaries along
with the area of supply and consumer details are as follows:
1. Kota Electricity Distribution Ltd (KEDL) commenced operations on 1st
September 2016, as a Distribution Franchisee of Jaipur Vidyut Vitaran Nigam
Limited (JVVNL) and now have 2.69 Lakh consumers in an area of 176 sq. Km.
2. Bharatpur Electricity Services Limited (BESL) commenced operations on 1st
December 2016, as a distribution franchisee of Jaipur Vidyut Vitaran Nigam
Limited (JVVNL) and now have 0.74 Lakh consumers in an area of 50 sq. Km.

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3. Bikaner Electricity Supply Limited (BkESL) commenced operations on 1st May

2017, as a distribution franchisee of Jodhpur Vidyut Vitaran Nigam Limited
(JDVVNL) and now have 1.78 Lakh consumers in an area of 155 sq. Km.

The past record shows that at the time of assuming distribution supply in Rajasthan,
the supply area was facing significant challenges, including high T&D loss, low
collection and Billing efficiency and inadequate consumer service etc. However, due
to several initiatives taken by the distribution franchisee, the company was able to
transform its operations and turnaround the situation into a profitable venture.

4.5.1 Key Achievements

1. T&D Losses

The T&D loss trajectory of all three CESC Distribution Franchises (DFs) in
Rajasthan (KEDL, BESL, and BkESL) showed significant improvement over the
years. The graph representing the same is shown below:

Source: CESC Presentation

Figure 13: T&D Loss Trajectory of CESC Rajasthan DFs

In the base year (FY 2016-17), the losses were recorded at 29.71% in Kota, 27.43%
in Bharatpur, and 24.43% in Bikaner. By FY 2023-24, these losses were significantly
reduced to 14.25% in Kota, 10.16% in Bharatpur, and 12.49% in Bikaner. Projections
for FY 2024-25 indicate further reductions in AT&C losses up to 12.7% in Kota,
9.5% in Bharatpur, and 11.6% in Bikaner. The substantial reductions in AT&C loss
indicates that the utility exhibited significant improvement and has enhanced its
operational efficiency.

2. Collection Efficiency Trajectory

The collection efficiency of the three distribution franchisee (KEDL, BESL, and
BkESL) have improved over the years as shown in the graph below:

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Source: CESC Presentation

Figure 14: Actual Collection Efficiency and Trajectory of CESC Rajasthan DFs

In FY 2020-21, the collection efficiencies were recorded at 95% for Kota, 94.21% for
Bharatpur, and 95.60% for Bikaner. Following the implementation of targeted initiatives,
detailed in subsequent sections, these DFs have achieved significant progress in FY 2023-
24, achieving collection efficiency of 99.88%, 99.33%, and 98.92%, respectively. These
outcomes reflect the effectiveness of sustained efforts taken by the DFs in improving the
revenue collection system.

4.5.2 Major Initiatives

CESC Rajasthan (DFs) have achieved significant milestones through various projects
aimed at improving efficiency, reducing losses, and ensuring better service delivery.
Their strategies and implementation details are as below:
1. Loss Reduction Initiatives –
a) DT Level Audit & Identification of High-Loss Areas: Detailed audits and
identification of pockets with high losses were conducted, followed by area-
specific strategies to mitigate these issues.
b) IT-Driven Loss Monitoring: The integration of IT-based reports and
analysis, including real-time updates on consumer data enabled better
tracking and control of losses. Systems such as DT metering, feeder metering,
and data analysis are used for continuous monitoring of loss and
identification of areas needing intervention.
c) Metering and Energy Monitoring: The installation of DT and feeder
metering has been prioritized in high-loss areas, with the data used to analyse
and minimize losses. Further, use of aluminium control cables and
heightening DT meter boxes have helped in preventing theft and pilferage.
d) Surveillance and Vigilance Activities: Routine surveillance activities, such
as de-hooking (removal of unauthorized connections) and network cleaning,

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are conducted to prevent theft. Vigilance teams, supported by local

authorities, help enforce these measures.
e) Network Optimization: The replacement of old, unarmoured cables with
armoured ones, along with installation of PMDB (Public Meter Distribution
Box) boxes, aimed at securing the network against theft and ensuring optimal
functioning.
f) Category-Based Loss Control: Areas are categorized based on their loss
levels (red, blue, green), with targeted measures in place for each. Red zones
(high loss) receive intensive surveillance and de-hooking activities, while
blue and green zones undergo regular monitoring and intervention as
needed.

2. Key Activities for locating Loss Pockets -

a) This includes 100% DT-based consumer indexing, tagging specific
categories, and continual surveys to flag unaccounted consumers.
b) DT energy metering in high- and low-loss areas, theft deterrents like
aluminium cables, and monthly loss reporting enhance monitoring.
c) Metering all 11 KV feeders, mapping DTs to feeders, and regular loss
tracking enable corrective actions and technical loss optimization.

3. Billing & Collection –

To improve the billing process for high-value consumers, several initiatives

were implemented which includes -
a) Achieving 100% AMR (Automated Meter Reading) for HT consumers and
ensuring billing on the 1st day of each month.
b) Billing for all high-value consumers with a load greater than 18.65 kW is
completed within the first week of the month.
c) Emphasis has been placed on route sequencing to optimise meter reading
efficiency. An in-house app facilitates enhanced monitoring, tracking of
meter locations, and addressing site-specific requirements.
d) A mechanism for bill scanning during delivery has been developed to
ensure 100% timely bill delivery. These measures collectively streamline
the billing process and enhance operational efficiency.

4. Revenue Realization Strategy –

The Revenue Realization Strategy which focuses on categorizing and

effectively addressing outstanding dues based on the amount owed by the
consumer is categorised as below -
a) For dues exceeding Rs.50,000, dedicated Executive Officers monitor
accounts, while SDO teams provide reminders through calls. Quick
Response Teams (QRT) pursue non-paying consumers, and cables are
removed immediately against unauthorised reconnections.

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b) For dues between Rs.20,000 and Rs.50,000, Junior Executive Officers,

supervised by senior officers, handle follow-ups and consumers receive
reminders during the first visit, followed by disconnection on the second
visit. DET officers play an active role in rigorous site-level follow-ups.
c) For dues ranging from Rs.5,000 to Rs.20,000, third-party vendors manage
accounts under SDO and ARO supervision. Tele-calling reminders and
door-to-door visits are conducted, with disconnections enforced after three
attempts.
5. Customer Service Avenues –

CESC Rajasthan offers a range of customer-centric services to enhance

consumer satisfaction and convenience. These include
a) a centralized customer care system, multiple digital payment platforms,
and mobile cash vans for on-the-spot payment collection.
b) A mobile app, SMS-based communication, and dedicated new connection
camps.
c) Services through WhatsApp CHATBOT by the name “201CRAJBOT” for
Direct Consumer information, Live Agent support, New Connection
Application & Status, Online payment facility, etc. which is available in
both Hindi and English .
d) A 24-hour call centre equipped with 180 lines ensures round-the-clock
assistance, while grievance redressal camps address consumer concerns
effectively. Additionally, consumer-friendly bill designs further simplified
the billing process.

These technology-driven initiatives have collectively resulted in improving the

reliability, transparency, and operational efficiency thereby ensuring
sustainable growth.

4.6 MP CENTRAL DISCOM

On behalf of all DISCOMs in Madhya Pradesh, MP Central DISCOM has provided
many suggestions on improving DISCOM viability, some of which are as follows:
a) Frequent Bill/Surcharge Waiver Schemes discourages timely payment of bills and
hence should be reconsidered.
b) Due to changing annual cropping pattern from two crops per year to three crops
per year, the assessment formula to compute agricultural sales requires to be
reviewed as the same directly affects the loss levels. A Study by the State
Commission is under progress to re-assess agricultural consumption.
c) No motivation to shift to Roof Top due to highly subsidised domestic tariff which
should be reconsidered as increase in Roof Top Solar connections will result in
reduction in line loss and reduced subsidies.
d) Shift all agricultural load to solar generation hours and necessary infrastructure
support to be provided by the State Government.
e) Input based Franchisee Option may be explored.

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f) Effective disconnection of supply in case of nonpayment of dues– Employee wise

accountability for timely disconnection of connections.
g) Find ways to factor in market rates before undertaking planned maintenance. Ways
to ensure visibility of market rates to employees of DISCOMs needs to be explored.
h) Incentivise economic activity by targeted subsidy to industrial and commercial
consumers by the State Governments. – State Government gets compensated in
terms of higher tax receipts due to increased economic activity.
i) Taking over of high cost debt by State Government – Reducing cost of Debt. –
Refinancing of Debt by utilities is a must to lower debt burden.
j) Due to farm policies such as MSP in favour of Paddy (a water intensive crop
requiring higher pumping requirement), agricultural consumption is increasing
affecting both loss levels and water table.
k) Reduction in Cross subsidy is vital for continued growth in commercial and
industrial activities.
l) Recovery of Fixed Charge Obligation through Fixed Tariffs. – Rationalisation of
Fixed Charges is necessary across DISCOMs for increased sustainability.
m) Over drawal by Domestic consumers beyond contracted demand may be penalised.
n) Frequency based Dynamic Pricing may be implemented for better demand
response.
o) Manpower Benchmarking Norm may be specified for DISCOM which shall act as
a reference point for Distribution Utilities.

4.7 SERCs
Data pertaining to cross subsidy, Regulatory assets as well as other factors impacting
viability of DISCOMs were received from six SERCs which have been annexed as
Annexure-IX to this Report.

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5 Identification, Analysis of Factors impacting DISCOM

Viability along with Recommendation on improving
Operational Efficiency
In accordance with the Terms of Reference and having perused the case studies brought
out in Section 3 of this Report along with and inputs received from SERCs (Annexure-
IX) , key factors that have a direct co-relation with the commercial viability and
sustainability of the DISCOMs are listed below.
1. AT&C Loss Reduction
2. Cross Subsidies
3. O&M Costs
4. Human Resource Optimisation and Workforce Management
5. Timely issuance of Tariff Orders
6. Regulatory Assets
7. ACS-ARR Gap

A detailed understanding of the above issues is vital for policymakers and stakeholders
to devise targeted reforms. Addressing these challenges requires a multifaceted
approach, combining regulatory reforms, operational efficiency improvements, and
strategic investments in infrastructure upgrades and modern technology. The impact of
these factors on sustainability of DISCOMs has been discussed in detail in this section
of the Report. Along with identification and analysis of these factors, this section also
specifies several initiatives, action points, remedies that have worked in the past and
have been referenced from the representations made by several DISCOMs before the
Working Group. These initiatives have been suitably co-related with the distribution
utilities implementing such initiatives so that it provides a direct reference to any
interested utility which intends to opt for implementing the said initiatives.

5.1 Factors impacting the Sustainability of DISCOMs

The sustainability of DISCOMs is influenced by several interrelated factors. A detailed
analysis of these factors, as identified above, reveals their profound impact on the
operational and financial viability of DISCOMs.

5.1.1 AT&C Losses

AT&C Losses (Aggregate Technical and Commercial Losses) refer to the total loss of
electricity in a distribution network, encompassing both technical losses and
commercial losses. This metric is vital for assessing the efficiency and is a key
indicator of financial viability of DISCOMs. High AT&C losses reflect significant
inefficiencies, leading to a direct negative impact on the financial health and
sustainability of DISCOMs.

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[Link] Components of AT&C Losses:

1. Technical Losses: While certain amount of technical loss is unavoidable, the
same may vary from 3%-4% in case of a compact urban distribution licensees
with higher HT:LT ratio to up to 9% in case of a large distribution network or in
case of distribution licensee operating in a difficult terrain. These losses occur due
to inherent inefficiencies in the physical infrastructure of the distribution
network. Technical losses are primarily linked to energy dissipation that
happens as electricity travels through transmission lines, transformers, and other
network equipment. This is a result of factors such as resistance, insulation
defects, and poor design in the distribution system. The major reasons for these
losses are as follows:

a) Outdated and inefficient Infrastructure: Ageing transformers, outdated

cables, and poorly maintained distribution lines are prime contributors to
technical losses. As infrastructure ages, its efficiency declines, leading to
increased losses. For instance, older transformers are less efficient and
consume more energy to supply the same amount of power, causing higher
technical losses.
b) Voltage drops: In an inefficient system, voltage drops can occur, leading to
higher losses over long distances. This issue is particularly prevalent in rural
areas where distribution lines are longer and not maintained appropriately.
c) Improper sizing of equipment: In some cases, transformers or other
network components may not be appropriately sized for the load, leading
to higher losses.
As discussed, though these losses to a certain extent are unavoidable, however,
technical losses beyond 9-10% is a red flag and needs to be analysed to plug in
leakages.

2. Commercial Losses: Commercial losses are a result of non-technical issues

related to how electricity is managed, billed, and paid for. They occur when
electricity is not properly accounted for in the billing process, or when customers
draw electricity without paying for it. These losses are completely avoidable and
are primarily due to the following reasons.

a) Theft and Pilferage: One of the most significant contributors to commercial

losses is theft. Consumers may bypass meters, have illegal connections, or
tamper with electrical equipment to steal electricity without being billed.
This is especially prevalent in certain regions with poor enforcement.
b) Underbilling or Non-billing: Inaccurate metering, poor data management,
and under-reporting of consumption can also lead to commercial losses. For
instance, inaccurate readings from old or faulty meters result in customers
being undercharged due to provisional billing, leading to lost revenue.

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c) Meter Tampering: In some cases, customers may tamper with their meters
to reduce the recorded consumption, which directly reduces the amount of
revenue DISCOMs can collect.
[Link] Financial impact of AT&C Losses on DISCOM Viability
High AT&C loss is a critical issue for DISCOMs, directly impacting their power
purchase costs, revenues, cash flows, and ability to reinvest in the infrastructure.
The financial implications of high AT&C losses are severe and are as follows:
1. Reduced Revenue Generation: High commercial losses mean that DISCOMs are
not collecting all the revenue they should, making it difficult to cover operational
expenses or repay debts. This gap in expected revenue is a significant contributor
to the ACS-ARR gap.
2. Increased Operational Costs: The financial burden caused by AT&C losses
forces DISCOMs to incur additional costs, such as buying additional power to
meet demand. This undermines their operational efficiency and leads to
increased operational costs that should not be passed through.
3. Inability to invest in Infrastructure: With significant financial losses due to
AT&C losses, DISCOMs often struggle to invest in necessary infrastructure
upgrades or expand their distribution networks and need to borrow loans at high
interest rates. This creates a vicious cycle where poor infrastructure leads to
higher losses, which in turn makes it difficult to invest in solutions to reduce
those losses.

[Link] Comprehensive measures to reduce AT&C Losses

Addressing these losses requires a multi-pronged strategy that integrates technical
advancements, operational reforms, and consumer-focused measures. The following
section elaborates on critical interventions with reference to successful
implementation by leading DISCOMs in India.

1. Strengthening Distribution Network

Modernizing and upgrading infrastructure is pivotal in reducing distribution

losses. This involves the following.
(a) Replacement of ageing transformers and distribution lines with efficient
transformers and advanced conductors and switchgears. All the
progressive distribution utilities covered in this report have undertaken
extensive infrastructure upgrades to minimize bottlenecks.
(b) Technological interventions such as Geographic Information System
(GIS) mapping and Supervisory Control and Data Acquisition (SCADA)
systems deployed by utilities such as TATA led distribution utilities,
Gujarat DISCOMs and MP(West) is noteworthy and has been
instrumental in enhancing network planning and asset management by
providing precise spatial data for network optimization.
(c) The implementation of Advanced Distribution Management Systems
(ADMS) offers real-time monitoring and automated network control,

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enabling DISCOMs to optimize load distribution and respond promptly

to outages. ADMS deployment by TPDDL and GUVNL played pivotal
role in reduction in AT&C losses.
(d) Implementing High Voltage Distribution Systems (HVDS) is must to
reduce non-technical loses as it is difficult to tamper with. TPDDL and
GUVNL have implemented HVDS effectively in high-loss regions.
(e) Similarly, LT Aerial Bunched Conductors have been adopted by
DISCOMs such as TPDDL and TPL to combat theft, improve safety, and
enhance network reliability.

2. Energy Audits at Distribution Transformer (DT) Level

Conducting energy audits at the Distribution Transformer (DT) level allows

DISCOMs to identify leakages and address inefficiencies systematically. By
analysing energy flow data, DISCOMs can pinpoint areas of high losses and take
corrective actions. GUVNL, MP(W), TPDDL, CESC and TPL have achieved
significant reductions in AT&C losses through regular DT-level energy audits,
ensuring precise identification of problem areas and targeted interventions.

3. Feeder Separation

Feeder separation schemes focus on segregating agricultural and non-

agricultural loads, enabling better load management and reducing losses.
GUVNL and MP(W) have implemented agricultural feeder separation projects,
particularly in regions with substantial agricultural consumption. These projects
have significantly helped in ensuring efficient power distribution, minimize
pilferage, and improve supply reliability for non-agricultural consumers. This is
highly recommended in areas with higher agricultural consumption.

4. Implementation of Robust Metering Systems

Effective metering systems are vital for addressing both technical and
commercial losses as the consumption based on actual meter readings is vital to
operational efficiency. All connections should be metered to leave little scope
for assessment billing. The following measures are suggested for loss reduction
(a) Smart meters, which ensure accurate billing and reduce theft, have been
widely deployed by DISCOMs such as TPDDL, GUVNL, MP(W). These
meters are very useful for high-loss areas and high-revenue customers.
Retrofit to existing electronic meters should be explored to reduce costs.
(b) Implementing prepaid metering systems, particularly in areas with low
billing efficiency, serves as an effective strategy to reduce AT&C losses.
In DISCOMs such as GUVNL and MP(W), this approach has successfully
improved revenue collection.
(c) Advanced Metering Infrastructure (AMI) further enhances efficiency by
enabling remote meter reading and tamper detection. Reducing manual

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errors and theft significantly reduces provisional billing which is one of

the major reasons for reduced billing efficiency.
(d) Meter tamper detection systems have been particularly effective in
alerting DISCOMs to illegal connections or meter manipulations,
ensuring swift corrective actions.
(e) Automated Demand Response (ADR) systems adopted by TPDDL have
led to optimize energy consumption during peak load periods, reducing
stress on the grid.
Combining the above initiatives have proven effective in reducing both technical
and commercial losses and fostering more efficient operations. Hence, it is very
important for Utilities to develop concrete metering plan and implement the
same with proper monitoring.

5. Loss Detection Systems and Data Analytics

The deployment of analytics-driven loss detection systems has revolutionized

how DISCOMs address AT&C losses. Advanced analytics tools enable the
identification of high-loss areas by analysing consumption patterns and detecting
anomalies. By analysing data, DISCOMs can predict potential losses and
implement proactive measures in high-risk areas. These systems are effective in
reducing both technical and commercial losses and fostering more efficient
operations.

6. Improving Revenue Collection and Controlling Theft

(a) In some States, frequent waiver schemes are dis-incentivising timely

payments. Honest consumers also feel cheated due to such schemes which
bail out serial offenders. Hence, such schemes may be implemented with
caution.
(b) The assessment formulas specified in case of unmetered connections
especially in case of agricultural consumers are old and based on old
consumption pattern and crop cycle, which may be leading to under billing.
(c) In areas where power theft is more common, targeted outreach through
NGOs and awareness campaigns are crucial. DISCOMs such TPDDL, TP-
Odisha, and Gujarat have implemented such programs.
(d) Strict enforcement strategies are essential in high-theft areas. DISCOMs such
as TPDDL, GUVNL, and TPL have implemented strong measures, including
specialized theft detection teams, regular inspections to swiftly address theft.
Dedicated courts and police stations streamline the legal process, ensuring
quick resolutions which acts as a deterrent.

7. Loss Reduction through LT consumption displacement

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(a) Facilitating Distributed Energy Systems: Distributed energy systems, such

as solar rooftops and energy storage systems (ESS), offer a transformative
solution to reduce losses and enhance grid efficiency. By encouraging the
adoption of these systems, DISCOMs such as TPDDL, GUVNL, and TPL have
displaced LT consumption thereby reducing losses.
(b) Supply to Agricultural Feeders during Solar Hours: The distribution
utilities especially in RE rich States, based on their power purchase portfolio
may explore to shift their load during the periods when cheap solar power is
available locally. This would require investments of distribution
infrastructure.
(c) Introduce Energy Efficiency Programs by incentivizing consumers to adopt
energy-efficient appliances.
(d) Concept of dynamic pricing may be introduced so that consumer is more
aware of the price of their consumption on real time basis. This may help shift
demand in a more efficient manner.
(e) Explore mini micro-Dam based Irrigation: The possibility of reducing
agricultural consumption by setting up mini and micro dams/ponds for
localised irrigation. This shall not only improve the local eco-system but will
also replace the highly cross subsidised agricultural consumption.

8. Corporate Social Responsibility (CSR) for Commercial Gains:

CSR Alignment with Loss Reduction: To achieve lasting reduction in energy

losses, CSR initiatives should be strategically deployed in areas characterized by
high theft and pilferage.

9. Public-Private Partnership (PPP) Models

The adoption of the Public-Private Partnership (PPP) models has shown

significant promise in addressing AT&C losses in high-loss areas. For instance,
TPL's Bhiwandi model, Odisha Model as well as CESC Rajasthan’s performance
demonstrates how privatized operations with clear accountability and
performance incentives can transform the efficiency of DISCOMs. This approach
has enabled significant reductions in losses while ensuring improved service
quality and financial viability.

5.1.2 Cross Subsidies

Cross-subsidies in electricity tariff can be defined as a mechanism whereby some
consumer groups are charged a higher tariff as compared to the cost of supplying
power to them. The additional revenue generated from them is used to tide over the
revenue shortfall from other consumer groups, who are charged lesser tariff as
compared to the cost of supplying power to them. In case of cross subsidies,
subsidisation is inbuilt in the tariff, unlike any external support (e.g., government
funds) which is provided in the case of direct subsidy. Cross subsidy is a matter of

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tariff design, which can be adjusted depending on the intended level of cross-
subsidisation. While this approach serves a social goal, it introduces several economic
and financial inefficiencies that can undermine the long-term sustainability of the
electricity distribution system as discussed below:

[Link] Mechanics of Cross Subsidies:

1. Higher Tariffs for Industrial and Commercial Users:
a) Industrial and commercial consumers, due to their high paying capacity,
typically are charged higher rates to cross subsidise agricultural consumers
and some domestic consumers falling under lower slabs of consumption.
b) The rationale is to redistribute costs across consumer segments so that
vulnerable groups do not face the full financial burden of electricity supply,
which could lead to energy poverty in these areas.

2. Lower Tariffs for Residential and Agricultural Users:

a) Agricultural users and Residential consumers, especially in rural areas and
those having consumption in lower slabs often pay heavily subsidized
electricity rates, which helps ensure basic energy access.
b) Subsidized rates for agriculture can lead to over-consumption of electricity
for non-productive uses, causing wastage and inefficiency in electricity
distribution, further increasing the financial burden on the DISCOMs
(distribution utilities) which is thereafter loaded on to industrial and
commercial consumers.

[Link] Economic and Financial impact of Cross Subsidies:

While cross subsidies have the goal of protecting vulnerable consumer groups, they
have several unintended negative consequences that can lead to long-term financial
challenges for DISCOMs.
1. Distorted Tariff Structures: Cross subsidies create non-cost-reflective tariffs.
When tariffs do not reflect the true cost of supply, they lead to market distortions,
making it difficult for consumers to make informed decisions about their energy
use. Businesses that face inflated electricity tariffs may reduce their energy
consumption or relocate operations to regions with more favourable tariffs,
which can lead to lost revenue for DISCOMs and an imbalance in the revenue
model.

2. Impact on Industrial and Commercial Consumers: The higher tariffs imposed

on industrial and commercial consumers can have detrimental effects on these
sectors, leading them to seek alternative sources of power to reduce costs. This
may include:

(a) Captive Generation: Many industries, particularly in energy-intensive

sectors, may opt for captive power generation (producing their own
electricity) to avoid the high tariffs imposed by the DISCOM. This shift

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reduces the cross-subsidising consumption, leading to further loading of

cross subsidising consumers that are still sourcing power from DISCOMs.
(b) Open Access: Industries may also explore alternative power through open
access, as a cost-effective alternative. This transition further erodes HT sales
which in turn affects the revenue base for DISCOMs.

3. Financial Strain on DISCOMs: Over-reliance on cross subsidies can create a

circular financial strain on DISCOMs. The larger the gap between actual supply
costs and the tariffs charged to certain consumer categories, the greater the
deficit, DISCOMs face. To bridge this gap, DISCOMs may rely on subsidies,
loans, or borrowing from financial institutions, which can result in a growing
financial burden.

[Link] The need for gradual rationalization of Cross Subsidies:

While cross subsidies serve a short-term social purpose, they lead to long-term
inefficiencies. Therefore, a gradual approach to rationalizing cross subsidies is
essential for improving the financial health of DISCOMs and ensuring more
sustainable electricity pricing.
1. Aligning Tariffs with Actual Cost: A major step in rationalizing cross subsidies
is gradually aligning tariffs with the actual cost of supply across all consumer
categories. This will arrest migration of cross subsidising consumers.

2. Implementing Direct Subsidy Transfers: In any case cross subsidy should

remain within the band of ±20% of ACoS. In case State Government wants to
provide further relief to any vulnerable consumers (such as Residential/
Agricultural), it should be provided by way of direct subsidy transfer and
regulators should not be expected to bring tariff of any consumer category below
80% of ACoS by way of Cross subsidization.

5.1.3 Operation and Maintenance (O&M) Costs

Operation and Maintenance (O&M) costs are an essential aspect of a DISCOM’s
expenditure. These costs include employee expenses, administrative costs and repair
and maintenance expense. Although necessary for the smooth running of utilities,
inefficient management of O&M costs can significantly affect the profitability and
financial sustainability of DISCOMs.

Key Components of O&M Costs:

1. Employee Costs: A large portion of O&M expenses is tied to employee costs,
which includes salaries, benefits, pensions, and other compensation-related
expenses. These costs are usually fixed and ongoing, providing limited
flexibility during periods of financial distress. If employee costs are too high,
it can place considerable strain on the overall financial structure of a
DISCOM.

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2. Equipment Maintenance Costs: Maintaining the distribution infrastructure

— including transformers, substations, distribution lines, and other
network components, is another substantial component of O&M costs. This
includes the cost of regular inspections, repairs, and replacements. If
equipment is old or prone to failure, maintenance costs can escalate,
increasing the overall O&M burden.
3. Administrative Costs: The administrative cost of distribution licensees
refers to the operational and regulatory expenses including legal expenses
incurred by electricity distribution companies (or licensees) in the process of
delivering electricity to consumers. These costs are integral to ensuring that
distribution networks function smoothly, comply with regulations, and
maintain the infrastructure necessary for efficient electricity delivery and cost
recovery.
[Link] Financial impact of Inefficiencies in O&M:
Inefficiencies in O&M costs can have a huge impact on the financial stability and
profitability of a DISCOM:
1. Strained Profitability: Excessive O&M costs reduce the margin between revenue
and expenditure. If O&M expenses grow disproportionately compared to
revenue growth, it can push a DISCOM into financial stress, resulting in the need
for subsidies, tariff hikes, or even government bailouts to maintain operations.
2. Reduced ability to invest in Infrastructure: With a large portion of resources
tied up in O&M expenses, DISCOMs may struggle to make the necessary
investments in new infrastructure, technology upgrades, or customer experience
improvements. This creates a vicious cycle, where limited investment leads to
inefficiencies in network management, further increasing O&M costs.
3. Increased Regulatory scrutiny: High O&M costs may attract attention from
Regulators, especially if they believe that DISCOMs are not managing resources
efficiently. This scrutiny could lead to regulatory actions, including
disallowances, which might affect the overall financial health of the DISCOM.

[Link] O&M Cost Optimisation:

A few strategies to optimize the O&M costs include:
1. Workforce Productivity: Managing employees in a more productive manner is
essential, particularly when a DISCOM’s labour force is a significant part of O&M
expenditure. Implementing strong performance management systems can help
ensure that employees are held accountable for their performance. By setting
clear goals and KPIs, DISCOMs can ensure that their workforce is focused on
delivering value and not contributing to inefficiencies.
2. Predictive Maintenance and Asset Management: Predictive maintenance refers
to the use of data analytics to forecast when assets, such as transformers or power
lines, are likely to fail. By implementing predictive maintenance technologies,
DISCOMs can reduce unplanned outages, improve asset longevity and avoid
costly emergency repairs.

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3. Outsourcing of activities: Instead of outsourcing manpower, it is recommended

to outsource activities especially those which are repetitive and non-critical.

In addition to the above initiatives to reduce the cost, one should also try to enhance
the efficient use of the human resource at hand through proper training and
development.

5.1.4 Optimizing Human Resources for enhanced Efficiency in DISCOMs

1. Operational Efficiency:
(a) The operational success of a DISCOM is fundamentally driven by the
efficiency of its workforce. Optimizing human resources is crucial for
ensuring these functions are performed efficiently and effectively, as even
the most advanced technologies will not deliver desired outcomes without
the right human input. For instance, Tata Power Odisha implemented a
workforce optimization strategy that focused on strategic staff deployment
and reducing operational inefficiencies. This was done by aligning staffing
levels with actual demand and ensuring employees were placed in positions
where they could maximize their impact.
(b) TPL and TPDDL demonstrated the importance of workforce optimization
by adopting smart technologies such as remote monitoring and advanced
metering systems. These innovations were accompanied by a parallel effort
to upskill the workforce, which allowed the DISCOMs to significantly
enhance operational efficiency.
(c) Gujarat DISCOMs, took a comprehensive approach by integrating
workforce training with technological advancements, ensuring that
employees not only operated sophisticated equipment but were also
equipped to troubleshoot and maintain them effectively. Through
continuous development programs, the DISCOM ensured that its workforce
remained adaptable to new technologies, allowing the company to maintain
high operational standards and reduce inefficiencies in service delivery.

2. Employee Motivation as a Driver for Change:

(a) The motivation of employees is one of the most powerful drivers of
organizational success in DISCOMs. Motivated employees are more likely
to perform beyond basic expectations, engage in innovative problem-
solving, and work collaboratively towards shared organizational goals.
(b) TPDDL also placed a strong emphasis on building a motivating work
culture by incorporating recognition programs into daily operations. These
programs recognized employees for their achievements and contributions,
whether in reducing operational losses, improving customer service, or
introducing innovative solutions.

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(c) For Gujarat DISCOMs, emphasis on workplace culture helped create an

environment where employees were encouraged to share knowledge,
collaborate on problem-solving, and celebrate team successes. As a result,
the company achieved higher levels of job satisfaction, lower turnover rates
and improved overall employee productivity.

3. Aligning Employee KPIs with Organizational Objectives:

One of the most effective methods for optimizing human resources is aligning
employee performance with the strategic goals of the DISCOM. By ensuring that
Key Performance Indicators (KPIs) are clearly defined and directly linked to
organizational objectives, DISCOMs can ensure that every employee’s
contribution is in line with the company’s long-term vision. Tata Power Odisha
and TPDDL successfully demonstrated the effectiveness of this approach by
linking KPIs to critical goals such as reducing technical losses, improving
customer service response times, and enhancing regulatory compliance.

4. Strategic workforce planning:

(a) Strategic workforce planning is essential for ensuring that a DISCOM’s
workforce is flexible, capable of responding to market changes, and prepared
for future challenges. Tata Power Odisha and MP(W) focused on recruiting
talent with expertise in critical areas such as data analytics, smart grid
technologies, and engineering, ensuring that the workforce was equipped to
handle new technological challenges. By promoting a culture of continuous
learning, these DISCOMs built a workforce that could quickly adapt to
industry trends and evolving customer needs.
(b) Gujarat DISCOMs and TPDDL and few others provided competitive
compensation packages, career development programs, and opportunities for
professional growth. Employees were encouraged to stay with the company
long-term by offering clear career advancement opportunities and
recognizing their contributions through performance-based incentives.

5. Continuity of Leadership
It has been observed that the Managing Directors of the State Distribution
utilities are frequently changed and there is no continuity of leadership. This
results in lack of continued vision and new initiatives do not achieve the desired
momentum and lose steam with the change in leadership. In most of the cases
where there is continuity of leadership for at least 3-4 years, the initiatives have
attained their end results and there has been considerable improvement in these
distribution utilities e.g., APDCL, Distribution utilities of Haryana.

TPDDL also focused on creating leadership succession plans to ensure that future
leadership transitions were seamless. By developing and mentoring high-
potential employees, the company ensured that it had a pipeline of capable leaders

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ready to step into senior roles when required. This forward-looking approach
prevented disruptions during leadership changes and maintained continuity in
the DISCOM’s operations.
6. Training and Capacity Building: Critical for Skill Development
Building Relevant Skills for the Power Sector:
(a) The power sector is rapidly evolving with technological advancements such
as smart grids, renewable energy integration, and automation. For DISCOMs
to remain competitive, their employees must stay abreast of these
advancements. Tata Power Odisha, MP(W), and GUVNL implemented
continuous training programs to upskill employees in emerging technologies,
including Advanced Metering Infrastructure (AMI), grid modernization, and
energy management systems. These training initiatives allowed employees to
remain relevant in the face of technological disruptions and improve the
DISCOM’s overall service quality.
(b) Employees must also be trained to handle the external challenges that come
with working in the power sector, including regulatory changes,
technological shifts, and demand fluctuations. MP(W), GUVNL, and TPDDL
integrated resilience-building programs into their training initiatives. These
programs were designed to teach employees how to adapt to changing
circumstances without compromising on performance. For instance, in
response to new regulatory frameworks, these DISCOMs conducted training
sessions to familiarize employees with the latest compliance requirements,
thereby preventing costly mistakes.
(c) Moreover, leadership training played a crucial role in helping managers and
senior leaders develop the skills necessary to guide teams through periods of
uncertainty. The leadership programs, offered by GUVNL and TPDDL,
enhanced employees' decision-making abilities, crisis management skills, and
their capacity to inspire and motivate teams during times of change.

5.1.5 Timely Issuance of Tariff Orders

The timely issuance of tariff orders is critical to the financial health and operational
stability of DISCOMs. Tariff orders issued by regulatory bodies, set the rates at which
electricity is sold to consumers, and they play a central role in ensuring that DISCOMs
can recover their costs and remain financially viable. Delays in the issuance of the tariff
orders, can have profound implications for DISCOMs, leading to cash flow problems,
financial instability, and operational challenges.
[Link] Measures and Strategies to Ensure Timely Issuance of Tariff Orders
1. Regulatory Mechanism Improvements

(a) Specified Timelines for Tariff Issuance: The State Electricity Regulatory
Commissions have specified the timelines for filing of Tariff Petitions by the
Utilities. It is suggested that in addition to the above, the timeline for issuance
of Tariff Orders in accordance with the Section 64(3) of the Electricity Act may

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also be included in the Regulations. This will ensure that tariffs are
determined on time.
(b) Simplified Review Process: Streamline regulatory review procedures by
adopting standard templates and pre-defined evaluation criteria to reduce
processing time. It is observed that most of the Regulatory Commissions have
specified standard formats in which data is required to be submitted while
filing the ARR and Tariff Petitions. It is observed that these data templates at
times require voluminous data that may not be related to tariff and therefore
these formats may require simplification to reduce regulatory over burden. It
is also observed that these formats are required to be interlinked and
therefore specifying editable templates for providing the information along
with tariff regulations may reduce time taken on seeking clarifications from
the utilities.
(c) Use of Technology: Many SERCs are using eFiling portals for filing of
petitions. Deploying advanced data analytics in the digital portals of SERCs
to automate data collection and analysis for tariff petitions, would enable
faster decisions. Initiatives such as Regulatory Web Tool and Information
Management Portal (an Initiative of FOR) where key data with respect to
other States as well as practices being followed are updated from time to time,
can prove to be very helpful for other States while taking decisions. Such
initiatives of automated data collection can also be implemented at the State
level.

2. Strengthening Coordination Between Stakeholders

(a) Timely Submission by DISCOMs: Enforce strict deadlines for DISCOMs to

submit Annual Revenue Requirement (ARR) filings and supporting
documents.
(b) Stakeholder Engagement: Conduct pre-scheduled consultations with
consumers, government representatives, and industry experts to resolve
objections and incorporate early feedback in the process.

3. Capacity Building for Regulators and DISCOMs

(a) Training Programs: Organize capacity-building initiatives for regulatory

staff and DISCOM personnel to enhance their understanding of tariff-setting
methodologies, data requirements, and best practices.
(b) Resource Allocation: Ensure adequate staffing and funding for regulatory
bodies to expedite the processing of tariff petitions.

4. Recognition and Penalties

(a) Recognition for Timely Actions: Reward DISCOMs and regulatory bodies
that adhere to prescribed timelines through KPI/KRA based incentives.

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(b) Penalties for Delays: Impose financial or operational penalties on

entities/personnel responsible for undue delays in the submission or
approval of tariff orders.

5.1.6 Regulatory Assets

Regulatory assets are financial tools used by DISCOMs to manage the gap between
the costs incurred in providing electricity and the revenues generated through tariffs.
When DISCOMs face a situation where they are unable to recover certain costs
immediately, regulatory assets allow them to defer those costs to future periods. This
practice is generally employed to provide temporary financial relief to utilities
struggling with short-term cash flow challenges, but it has significant long-term
implications that can affect the financial health and sustainability of DISCOMs.
How do Regulatory Assets (do not) Work?
(a) Regulatory assets, while providing short-term financial relief, result in an
accumulation of deferred liabilities. These liabilities accumulate when
DISCOMs continuously defer cost recovery rather than addressing the
underlying cost or revenue issues.
(b) As the regulatory assets accumulate, it becomes more challenging for
DISCOMs to recover these costs in future, as large-scale tariff hikes may be
needed to clear these deferred amounts. E.g. Case of Delhi DISCOMs.

[Link] Challenges of relying on Regulatory Assets:

1. Financial Health and Long-Term Planning:

(a) The continued reliance on regulatory assets can skew the financial planning
of DISCOMs, as they may not depict an accurate picture of their real cost-to-
revenue ratio. If the deferred costs are substantial, it can create a false sense
of stability in the short term while hiding deeper, systemic financial
problems.
(b) Over-reliance on deferred costs can prevent DISCOMs from undertaking
necessary reforms in cost management, procurement practices, and
operational efficiencies.

2. Impairment of Service Quality:

With a large portion of their resources tied up in recovering deferred costs,

DISCOMs may lack the necessary funds to invest in infrastructure upgrades,
maintenance, or expansion of their network. This reduces their ability to improve
service quality and address issues such as technical losses or service reliability.

3. Inflationary pressure on Tariffs:

(a) Repeated accumulation of regulatory assets can lead to inflationary pressure

on tariffs, as future tariff increases may need to reflect not only current cost

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escalations but also past accumulated costs and carrying costs. This creates a
cumulative burden on consumers, who face higher rates over time.
(b) The pressure on consumers can also escalate if fuel price hikes or other cost
increases occur, forcing DISCOMs to adjust tariffs to cover the historical
regulatory asset backlog.
[Link] Strategies for addressing Regulatory Asset accumulation:
1. Real-Time Cost Recovery:

(a) One of the most effective ways to reduce the accumulation of regulatory
assets is not to create any new Regulatory Assets. For the recovery of old
Regulatory Assets, the same can be either passed on in the form of regulatory
surcharges or the State Regulator can transition to a framework that allows
cost reflective tariffs.
(b) Implementing automatic pass-through mechanisms for fuel price variations
or changes in procurement costs can help eliminate the need for regulatory
assets altogether, as these changes can be directly reflected in tariffs without
deferring costs to the future.

2. Debt Restructuring and Government Support:

In cases where regulatory assets have become unmanageable, debt restructuring

or government interventions may be necessary to ease the financial burden on
DISCOMs. Governments can continue to provide support in the form of grants
or soft loans to help clear regulatory assets, while simultaneously working on
long-term reforms to improve DISCOM financials.

5.1.7 ACS-ARR Gap

The ACS-ARR gap (Average Cost of Supply vs. Average Revenue Realized) is a
crucial financial metric used to assess the financial health of DISCOMs. This gap
essentially represents the difference between the actual cost incurred by the DISCOMs
in supplying electricity to consumers (ACS) and the revenue collected or realised from
these consumers (ARR). When the cost of supply exceeds the revenue generated, it
results in a financial shortfall that severely impacts the sustainability and growth of
DISCOMs.
[Link] Key Factors Contributing to the ACoS-ARR Gap:
1. AT&C Losses higher than the Normative Losses: As any losses over and above
the norms are mostly not allowed by the State Regulator, any shortfall in meeting
the norm directly impacts the ACoS-ARR gap.
2. Non-Cost-Reflective Tariffs: One of the primary reasons for a high ACS-ARR
gap is the presence of non-cost-reflective tariffs. Tariffs that do not reflect the true
cost of supply create a discrepancy between the revenue DISCOMs can recover
and the actual cost incurred in delivering electricity.
3. Delayed or Infrequent Tariff Revisions: Due to delay in tariff revisions, if tariff
adjustments are not made on time or are inconsistent with cost escalations, the

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gap between ACS and ARR widens, making it difficult for DISCOMs to cover
their costs.
4. Operational Shortcomings: Inefficient distribution networks, high technical
losses, and poor management of assets can also contribute to the ACS-ARR gap.
Operational inefficiencies not only increase the cost of supply but also reduce the
revenue DISCOMs can generate, as a portion of the power is lost during
distribution or is unbilled due to inaccurate metering or billing systems.

[Link] Financial Implications of persistent ACS-ARR Gaps:

When the ACS-ARR gap persists over time, it leads DISCOMs into a vicious cycle of
financial distress. The gap requires external financial intervention in the form of
loans, government bailouts, or subsidies to bridge the revenue deficit. While these
measures provide temporary relief, they come with long-term consequences:
1. Increasing Debt Burden: Borrowing to cover revenue shortfalls results in rising
debt levels, leading to higher interest liabilities. Over time, this can lead to a
situation where DISCOMs are financially unable to meet their debt obligations,
further worsening their financial health.
2. Government Bailouts: Reliance on government bailouts can help in the short
term, but this approach is not sustainable in the long run. It leads to a continued
dependence on public funds and hampers the ability of DISCOMs to become self-
sustaining.
3. Inability to invest in Infrastructure: The financial strain caused by an ACoS-
ARR gap limits the resources available for essential infrastructure development,
such as upgrading the distribution network, expanding grid capacity, and
investing in smart grid technologies. Without these investments, DISCOMs are
unable to improve service delivery, reduce losses, or enhance system reliability.
4. Delayed Technology Adoption: The financial challenges prevent DISCOMs
from adopting newer technologies, such as renewable energy integration or
automation, which are essential for improving operational efficiencies and cost-
effectiveness.

[Link] Addressing the ACS-ARR Gap: A Dual Approach

To resolve the ACS-ARR gap, there is a need to adopt a two-pronged strategy that
focuses on both revenue enhancement and cost reduction:
1. Regular Tariff Adjustments: One of the most important steps is to ensure that
tariffs are revised periodically to reflect the actual costs of supply. SERCs may
adopt a transparent and predictable tariff adjustment mechanism that
considers cost escalations such as fuel price increases, inflation, and currency
fluctuations.
2. Cost-Reduction Measures: In parallel with tariff adjustments, DISCOMs must
undertake measures to reduce the overall cost of supply. Some key strategies
include:
2.1. Enhancing Operational Efficiencies: Streamlining operations by upgrading
old infrastructure, reducing transmission and distribution (T&D) losses,

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improving billing and metering systems, and modernizing grids, can reduce
operational costs and improve the overall cost-effectiveness of the
distribution system.
2.2. Adoption of Technological Solutions: Implementing advanced
technologies such as automated grid management systems, and data
analytics can help detect inefficiencies, reduce losses, and improve customer
service. Implementation of Smart Meters needs to be done in phased manner
with priority towards high loss areas.
2.3. Power Purchase Optimization: DISCOMs should adopt comprehensive
strategies to ensure cost-effective procurement while maintaining a reliable
and uninterrupted power supply. Developing a Resource Adequacy Plan
and getting it approved is critical to ensure adequate generation and reserve
capacity to meet forecasted demand reliably. Further, robust forecasting
mechanisms involving advanced analytical tools, is required to be adopted
to better anticipate demand, renewable energy generation and to benefit
from power markets.
2.4. Renewable Energy Integration: Incorporate distributed renewable energy
sources such as solar and wind into the power procurement portfolio. These
sources often have lower costs, benefit from government incentives, and
support sustainable development by reducing long-term energy
consumption. Further to enhance the effectiveness and reliability,
incorporating Energy Storage Systems (ESS) is highly recommended. ESS
can mitigate the variability of renewable energy, ensure grid stability,
optimize energy utilization, and maximize the efficiency of the overall
energy system. Ways to integrate Renewable Energy as presented by
Additional Chief Secretary of Power, Government of Madhya Pradesh,
offering valuable insights into the integration of decentralised renewable
energy projects is annexed as Annexure-VI.

5.2 Correlation Between Performance Metrics: ACS-ARR Gap, AT&C Losses, Billing
Efficiency, and Collection Efficiency
The performance metrics of DISCOMs, such as ACS-ARR Gap, AT&C Losses, Billing
Efficiency, and Collection Efficiency, are inter-dependent and provide a comprehensive
view of their financial and operational health. Understanding and addressing these
interrelations is crucial for enhancing DISCOM performance.

5.2.1 Analysis of the Correlation

To analyse the correlation between key performance metrics, including ACS-ARR,
AT&C Loss, Billing Efficiency, and Collection Efficiency, the data of several DISCOMs
is presented in the table below:

Table 5:1 - Correlation Metrics (ACS-ARR, AT&C Loss, Billing Efficiency, and
Collection Efficiency)

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ACS-ARR Gap Billing Efficiency Collection

AT&C (%)
(Rs/kWh) (%) Efficiency (%)
State
FY FY FY FY FY FY FY FY
2021-22 2022-23 2021-22 2022-23 2021-22 2022-23 2021-22 2022-23
HPSEBL 0.09 0.8 12.9 10.59 87.25 89.41 99.82 100
JBVNL 1.61 2.47 30.85 30.28 72.51 69.72 95.37 100
MSEDCL 0.02 1.42 16.73 19.07 84.77 84.94 98.23 95.28
MePDCL 0.09 1.41 25.52 23.97 78.94 87.97 94.35 86.43
TANGEDCO 1.01 0.96 11.44 10.31 89.49 90.83 98.95 98.75
TSNPDCL 1.52 1.19 14.11 22.19 91.19 92.83 94.19 83.82
TSSPDCL 1.4.0 1.08 9.14 17.2 90.86 91.5 100 90.49
TSECL 0.53 1.00 31.17 28.15 75.26 75.3 91.46 95.41
DVVNL 1.63 2.08 31.04 24.04 74.36 78.41 92.74 96.87
MVVNL 2.51 2.39 35.63 24.22 82.64 84.94 77.89 89.22
PuVVNL 1.79 2.92 40.02 27.27 79.85 82.6 75.12 88.06
Andaman &
2.83 0.51 19.8 19.81 80.74 81.86 99.33 97.96
Nicobar PD
Ladakh PD 0.39 1.99 48.29 30.33 59.48 69.67 86.94 100
BEST 1.60 2.06 7.89 4.18 95.37 95.82 96.59 100
Mizoram PD 1.32 2.07 36.23 26.27 70.55 73.73 90.39 100
TPSODL 0.38 0.74 34.26 31.32 76.64 75.04 85.77 91.53
IPCL 0.34 0.8 4.02 6.56 96.9 96.99 99.04 96.34
Source: RPM Meeting of MoP 18th and 19th Jan 2024

Correlation between ACS-ARR Gap and Low Billing Efficiency: As is evident from
the above, there is a correlation between a large ACoS-ARR gap and low billing
efficiency. It is observed that where there is significant ACoS-ARR gap, the billing
efficiency is very poor, establishing an inverse co-relation. Therefore, improving
billing efficiency plays a central role in reducing AT&C losses. By implementing the
initiatives highlighted in this report, DISCOMs can substantially reduce their billing
losses as is the case of several successful DISCOMs such as Tata Power Odisha, MP(W),
TPDDL, GUVNL, CESC and TPL who have been able to achieve lower AT&C losses
levels by improving their billing efficiency.

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6 Analysis and Benchmarking of Employee and

Administrative Cost Structure
6.1 Overview
It has been observed that though most of the ARR components have been standardised,
the O&M expenses in case of Distribution Utilities vary significantly. Operations and
Maintenance (O&M) expenses are a controllable parameter comprising of following
major cost components.
1. Employee Expenses
2. Administrative and General Expenses
3. R&M Expense

Upon further analysis of components of O&M expenses, it is observed that the variation
in O&M expenses of distribution utilities is mainly observed in case of employee
expenses and in certain cases, in A&G expenses. These expenses primarily vary due to
the following reasons;
a) Legacy issues – Some State Distribution utilities such as HPSEBL and PSPCL
have significantly high employee expenses as these distribution utilities have
inherited huge number of employees from the erstwhile Electricity Boards.
b) Terrain – Based on the terrain and consumer density, the employee expenses as
well as administrative expenses varies significantly. For eg. for the same number
of sales, O&M expenses is expected to be higher in case of hilly, NE states as well
as in case of islands territories such as A&N Islands and Lakshadweep.
c) Consumer Mix – Consumer mix also has a considerable impact on the employee
and A&G expenses. For a given Sales, a distribution utility with higher mix of
LT consumers is expected to incur higher employee and A&G Expenses as
compared to a distribution utility with lower mix of LT consumers.

These State specific issues pose challenges when it comes to specifying benchmarked
norms that applies to all. It is however, observed that as majority of Indian States are
fairly balanced with regards to the combined impact of the above three criterion, an
attempt has been made to indicate benchmarked cost for these distribution utilities
which comprises of majority of electricity consumers of the Country.
For special cases such as Hilly, NE States and Island territories, a factor may be specified
which can suitably capture the challenges being faced by these specific distribution
utilities.
In view of the above and with an objective of optimising these controllable expenses, it
was decided to include in the report an analysis of employee cost structure and
recommendations with regard to optimisation of the cost. In addition, this report also
specifies guidelines to reduce the O&M and A&G costs.

6.2 Analysis of Employee and A&G Cost Structure

This Section deals with the analysis of structure of employee and administration
expenses for several distribution utilities and based on the prudent costs allowed by the

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State Commission for several distribution utilities, an attempt has been made to carry
out benchmarking of the cost. The major cost components of Employee and A&G
Expenses is as follows:
1. Employee Expenses primarily include the following costs.
a. Salaries and Wages
b. Terminal Benefits
c. Incentives
2. A&G Expenses primarily includes the following costs.
a. Insurance
b. Rent and Lease
c. Electricity Charges
d. Travelling Expenses
e. Cost of Outsourced activities
f. Cost of Contractual Employees
g. Stationary, Phone Bills
h. Other Administrative expenses

6.2.1 Employee Expenses

Apart from including the salaries and wages component, employee expenses also
include terminal benefits such as pension and gratuity. Therefore, it is important that
while specifying the benchmarking, cost towards terminal benefit is factored in.

6.2.2 A&G Expenses

A&G expenses include all administrative expenses such as rent, electricity charges,
travel expenses, insurance etc., Apart from the above, it is also observed in some
distribution utilities that A&G expenses also include cost incurred on contractual
employees and outsourced activities.

6.3 Benchmarking of Employee and A&G Cost and Optimisation

6.3.1 Benchmarking Philosophy

Benchmarking cost in power utilities is a valuable tool for identifying inefficiencies,
driving operational improvements, and ensuring that resources are used effectively.
By continuously comparing their performance against industry standards and peers,
utilities can achieve sustainable cost reductions, improve service quality, and enhance
overall financial performance. It also provides transparency and accountability,
particularly in a regulated environment, where utilities must justify their costs to
regulators and customers.

Benchmarking of cost relies on comparing relevant cost of similar entities and should
be carried out only if sufficient data is available. Further, the utility being evaluated is
required to be compared to organizations of similar size, type, service territory, and
regulatory environment. The process should be transparent with clear definitions and
methodologies used for cost measurement, data collection, and analysis. This ensures

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that results are credible and can be acted upon with confidence. Further,
benchmarking should use consistent cost measurement metrics over time to allow for
meaningful comparisons and to track improvements or declines in performance.
Based on the analysis of cost structure of O&M expenses and its components i.e.,
Employee and A&G Expenses, it is observed that across utilities there are certain
variations with regards to the following costs:
1. Terminal Benefits
2. Cost towards contractual Staff and Outsourced activity

As already discussed, to have uniformity, while carrying out the benchmarking, these
expenses have been included for all the utilities that have been considered for
benchmarking of cost.
Regarding cost towards contractual staff and outsourced activity, it is observed that in
some utilities these costs are included in the A&G expenses and do not form part of
employee expenses and therefore while carrying out benchmarking, considering only
employee expenses will not be correct as this may not reflect the true cost. In view of
the same, an alternate scenario has also been developed wherein, benchmarking has
been carried out for combined employee and A&G Expenses.

6.3.2 Sample Selection Criteria

To carry out benchmarking study, the utilities across regions have been considered.
This ensures a proper mix of distribution utilities based on which benchmarking has
been carried out. Apart from this, as these costs are scalable and tend to increase year
on year basis, it was important that while comparing the cost, the same year data is
considered. Further, the benchmarking has been carried out based on latest actual cost
that were trued up by the respective State Commissions after carrying out due
prudence check. As the most recent year for which approved true up data is available
is FY 2022-23, while selecting distribution utilities, only those utilities for which FY
2022-23 truing up has been carried out have been considered.
The list of distribution utilities that have been considered for the purpose of
benchmarking of costs is as below.
1. Punjab State Power Corporation Limited (PSPCL)
2. Madhya Pradesh Poorv Kshetra Vidyut Vitran Company Limited (MP East
DISCOM)
3. Madhya Pradesh Paschim Kshetra Vidyut Vitran Company Limited (MP West
DISCOM)
4. Madhya Pradesh Madhya Kshetra Vidyut Vitran Company Limited (MP
Central DISCOM)
5. Chhattisgarh State Power Distribution Company Limited (CSPDCL)
6. South Bihar Power Distribution Company Limited (SBPDCL)
7. North Bihar Power Distribution Company Limited (NBPDCL)
8. Uttarakhand Power Corporation Limited (UPCL)
9. Himachal Pradesh State Electricity Board Limited (HPSEBL)
10. Paschim Gujarat Vij Company Limited (PGVCL)

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6.4 Benchmarking Methodology

Before recommending benchmarked cost, it is imperative that the possible basis of
benchmarking is discussed. It is observed that O&M expenses directly depend upon the
scale of operations. Further, possible metrics to gauge scale of operations of a
distribution business can be quantum of sales or amount of fixed assets. It is further
observed that the average cost of supply of any distribution licensees’ factors in all the
cost and inherent challenges related to that specific distribution area. Hence,
benchmarking of employee and A&G cost which is also affected by similar factors will
automatically get factored in if the cost is benchmarked against the ACoS. In view of the
above, the possible basis of benchmarking can be as follows:
1. Based on expenses per unit of Sales expressed in Rs. /kWh or paise/kWh.
2. Based on expenses incurred to service per crore of Gross Fixed Assets expressed
either in terms of percentage or cost incurred to maintaining one Crore of GFA.
3. Based on the expenses incurred as a percentage of ACoS.

On analysis, it is observed that unlike Repair and Maintenance expenses which depend
upon value of fixed assets, employee expenses as well as A&G expenses may not be
directly dependent upon the value of assets. Further, value of assets is largely affected
by the vintage of the assets and therefore benchmarking against value of fixed assets
may not reflect the true cost. Instead, the employee and A&G expenses are more of a
function of the retail operations which is truly reflected by quantum of sales and hence
should be considered. Therefore, the benchmarking has been carried out in terms of per
unit sales. Further, for the reasons already discussed above, the benchmarking has also
been carried out based on percentage of ACoS.
It is further re-iterated, that while considering employee expenses, for uniformity
purposes cost of terminal benefits has also been considered.

6.4.1 Employee expenses per sales (Rs/kWh):

The employee expenses per unit of Sales is as shown below.
Table 6:1 - Employee expenses per unit of sales (Rs/kWh)
DISCOM FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23
HPSEB-HP 1.70 1.89 1.94 1.67 2.17
PSPCL-PJ 0.77 0.80 0.81 0.86 1.00
CSPDCL-CH 0.37 0.42 0.40 0.37 0.67
East DISCOM-MP 0.45 0.50 0.49 0.51 0.57
Central DISCOM-MP 0.45 0.33 0.40 0.39 0.47
SBPDCL-BH 0.41 0.45 0.45 0.46 0.47
West DISCOM-MP 0.35 0.46 0.33 0.31 0.40
PGVCL-GJ 0.31 0.40 0.35 0.39 0.34
UPCL-UK 0.28 0.28 0.31 0.29 0.29
NBPDCL-BH 0.28 0.32 0.32 0.32 0.28
Source: Various Tariff Orders issued by State ERCs

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As per the above, the DISCOMs highlighted in green represent the desired state of
efficiency and financial performance. These entities indicate the potential outcomes of
streamlined operations, optimized costs, and effective regulatory practices. However,
it does not mean that there is no room for improvement even within this group, these
DISCOMs should not be complacent to not try to further refine their operations, reduce
inefficiencies, and aspire towards better operational efficiency.

While the DISCOMs that are better in terms of the above benchmark cost appears to
be on the right trajectory, the focus must remain on consistently implementing best
practices and adapting strategies proven successful in other progressive utilities.

6.4.2 Employee expenses as a percentage of ACoS:

Table 6:2 - Employee expenses as a percentage of ACoS
FY FY FY FY FY ACOS Employee
2018-19 2019-20 2020-21 2021-22 2022-23 (2022-23) Expenses as a %
DISCOM
of ACOS
Rs. /kWh (FY 2022-23)
HPSEB-HP 1.70 1.89 1.94 1.67 2.17 6.94 31%
PSPCL-PJ 0.77 0.80 0.81 0.86 1.00 7.09 14%
CSPDCL-CH 0.37 0.42 0.40 0.37 0.67 7.02 10%
East DISCOM-MP 0.45 0.50 0.49 0.51 0.57 7.16 8%
Central DISCOM-MP 0.45 0.33 0.40 0.39 0.47 6.80 7%
West DISCOM-MP 0.35 0.46 0.33 0.31 0.40 7.50 5%
SBPDCL-BH 0.41 0.45 0.45 0.46 0.47 9.94 5%
PGVCL-GJ 0.31 0.40 0.35 0.39 0.34 7.64 4%
UPCL-UK 0.28 0.28 0.31 0.29 0.29 6.90 4%
NBPDCL-BH 0.28 0.32 0.32 0.32 0.28 7.10 4%
Source: Various Tariff Orders issued by State ERCs

DISCOMs highlighted in green are around the desired level of cost efficiency. Anything
below 5% is highly desirable and expenses in the range of 5-6% of ACoS is acceptable
for Distribution Utilities in plain regions. Anything beyond 6% requires graded
rationalisation. However, for Utilities in hilly areas and island areas, percentage will
vary based on Utility specific factors and SERCs will have to consider those factors

It is observed that the employee expenses in case of HPSEBL and PSPCL are
significantly higher as compared to others. It is learned that the major chunk of these
expenses is due to high terminal benefits. In the case of HPSEBL, in FY 2022-23 around
50% of the total employee expenses comprises of terminal benefits. Similarly, in case of
PSPCL, the terminal benefits account for around 60% of total employee costs. These
huge terminal benefits have resulted in increase in ACoS and needs to be addressed.

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Such huge impact of terminal benefits has not been observed in any other sampled
distribution utilities.

As discussed earlier, to incorporate the impact of contractual employees, combined cost

of employee and A&G expenses have been benchmarked in the following paras.

6.4.3 Employee and A&G Expenses per sales (Rs/kWh):

The employee and A&G expenses incurred per unit of sales is as shown in the
following table.

Table 6:3 - Employee and A&G Expenses per sales (Rs/kWh)

DISCOM FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23
HPSEBL-HP 1.76 1.94 1.99 1.72 2.16
PSPCL-PJ 0.84 0.88 0.84 0.89 1.03
CSPDCL-CH 0.43 0.49 0.46 0.43 0.70
East DISCOM-MP 0.81 0.67 0.69 0.71 0.64
SBPDCL-BH 0.52 0.55 0.54 0.56 0.63
Central DISCOM-MP 0.62 0.65 0.61 0.58 0.52
West DISCOM-MP 0.54 0.68 0.46 0.50 0.45
NBPDCL-BH 0.43 0.45 0.45 0.45 0.44
PGVCL-GJ 0.37 0.46 0.41 0.45 0.40
UPCL-UK 0.31 0.31 0.35 0.34 0.33
Source: Various Tariff Orders issued by State ERCs

As per the above, the DISCOMs highlighted in green represent the desired state of
efficiency and financial performance.

While the DISCOMs that are better in terms of the above benchmark cost are on the
right trajectory, the focus must remain on consistently implementing best practices and
adapting strategies proven successful in other progressive utilities.

6.4.4 Employee and A&G Expenses as a percentage of ACOS:

The employee and A&G expenses as a percentage of ACoS is as shown in the following
table.

Table 6:4 - Employee and A&G Expenses as a percentage of ACOS

FY FY FY FY FY ACOS (FY Expenses as
2018-19 2019-20 2020-21 2021-22 2022-23 2022-23) a % of
DISCOM
ACOS
Rs. /kWh
(FY 2022-23)
HPSEBL-HP 1.76 1.94 1.99 1.72 2.16 6.94 31%
PSPCL-PJ 0.84 0.88 0.84 0.89 1.03 7.09 15%
CSPDCL-CH 0.43 0.49 0.46 0.43 0.70 7.02 10%
East DISCOM-MP 0.81 0.67 0.69 0.71 0.64 7.16 9%

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FY FY FY FY FY ACOS (FY Expenses as

2018-19 2019-20 2020-21 2021-22 2022-23 2022-23) a % of
DISCOM
ACOS
Rs. /kWh
(FY 2022-23)
Central DISCOM-MP 0.62 0.65 0.61 0.58 0.52 6.80 8%
West DISCOM-MP 0.54 0.68 0.46 0.50 0.45 7.50 6%
SBPDCL-BH 0.52 0.55 0.54 0.56 0.63 9.94 6%
NBPDCL-BH 0.43 0.45 0.45 0.45 0.44 7.10 6%
PGVCL-GJ 0.37 0.46 0.41 0.45 0.40 7.64 5%
UPCL-UK 0.31 0.31 0.35 0.34 0.33 6.90 5%

DISCOMs highlighted in green are around the desired level of cost efficiency.
Anything below 6% is highly desirable and expenses in the range of 6-7% of ACoS is
acceptable for Distribution Utilities in plain regions. Anything beyond 7% requires
graded rationalisation. However, for Utilities in hilly areas and island areas,
percentage will vary based on Utility specific factors and SERCs will have to consider
those factors.

The FOR in the 94th Meeting suggested that separate norms be explored for hilly States
and NE States. In line with the recommendations, data of 8 hilly and North-eastern
States were analysed and is as shown in the following table.

Table 6:5 - Employee and A&G Expenses as a percentage of ACOS for Hilly and NE
Regions
Expenses as a % of
Total Employee + A&G
DISCOM ACOS ACOS
Expenses/kWh
(FY 2022-23)
HPSEBL-HP 2.16 6.94 31%
UPCL-UK 0.33 6.90 5%
ASSAM 1.1 9.36 12%
Ladakh 2.9 18.74 15%
Tripura 1.73 16.28 11%
Meghalaya 1.26 5.80 22%
Nagaland 1.77 8.93 20%
Manipur 1.85 12.17 15%

It is observed from the above that the expenses to operate and maintain distribution
infrastructure in difficult terrain are substantially higher with the exception of
Uttarakhand where the actuals are lower as the entire pension liability is managed
through a Trust and not all expenses are recovered through tariff. It is recommended
that other State utilities in hilly regions should initially strive to reach the level of
O&M expenses of 10% of ACOS in the next 3-4 years and then gradually to be in the
range of 6-8% of ACOS.

This analysis underscores the importance of benchmarking workforce cost efficiency

and provides a roadmap for all DISCOMs to achieve balanced and sustainable
operations while ensuring robust infrastructure maintenance.

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6.5 Recommendations on Employee and A&G cost structures for optimization of

employee cost
Multiple suggestions were received from the distribution utilities on ways to
sustainably rationalise the Employee and A&G cost. Effective management of
Operations and Maintenance (O&M) costs, particularly Employee Expenses and
Administrative & General (A&G) expenses, is vital for the long-term financial viability
of Distribution Utilities (DISCOMs). These costs constitute a significant portion of the
operational budget and directly impact the quality and reliability of service delivery.
Streamlining these expenditures is not merely about cost-cutting, but is a strategic
exercise aimed at enhancing financial performance while ensuring consistent, high-
quality service. Chapter 4 of this Report already deals in detail on the ways to optimise
O&M cost. This section delves into further detailing of how to further rationalise these
costs and also how to formulate a KPI based performance matrix for evaluation of
Organisation performance.

6.5.1 Workforce Rationalization and Skill Mapping

To start with, skill mapping or manpower audit exercise is required to understand
areas of overstaffing, identify redundant roles so that they can be re-assigned, skill
gaps to understand the upskilling, reskilling needs and activities that can be
outsourced to reduce cost. This process will ensure the deployment of human
resources as per the organization’s operational needs and strategic goals, ensuring that
resources are neither underutilized nor stretched thin. One of the ways, DISCOMs
achieve this is by outsourcing non-core activities, such as administrative support or
routine maintenance tasks, to external vendors. This approach enables internal
resources to focus on critical functions that directly affect service delivery, thereby
reducing administrative overheads.
6.5.2 Rationalisation/Taking over of Terminal Benefits by State Governments
As also discussed earlier, in case of Himachal Pradesh and Punjab, the burden of
terminal benefits is significantly higher which has resulted in the increase in the ACoS.
As terminal benefits are legacy issues and difficult to rationalise/curtail, it is
recommended that these costs are partially or fully met by the State Government
thereby leading to cost rationalisation.
6.5.3 Leveraging Technology for Operational Efficiency
Technological advancements play an indispensable role in reducing costs and
boosting productivity. Integrating Information Technology (IT) solutions into core
operations is a key step in minimizing manual interventions and improving
operational accuracy. For example, the deployment of smart meters and automated
billing systems has proven effective in enhancing billing efficiency and reducing
administrative burdens. These technologies provide accurate data in real-time,
enabling faster and more reliable decision-making.

The integration of automation and digitization is vital, with the implementation of

technology solutions for metering, billing, and collection (MBC) significantly
reducing manual intervention and associated costs. Additionally, role consolidation
and automation can help optimize overlapping responsibilities in functions such as

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billing, customer service, and network monitoring, decreasing manpower needs while
maintaining service standards.
Modernizing distribution networks is another critical area for cost optimization.
Torrent Power’s success in Ahmedabad and Bhiwandi and TATA’s success in Delhi as
well as Odisha demonstrates the benefits of technological interventions in distribution
systems.
6.5.4 Performance-Based Incentive Structures
Aligning employee incentives with key performance indicators (KPIs) ensures
accountability and drives efficiency. If employees are motivated by means of suitable
reward, the productivity is bound to increase. It is therefore suggested to not only
establish a structure to carry out KPI/KRA based incentive but also to provide ample
clarity and visibility to the employees on what they shall get or lose if they do not
achieve the KPIs and KRAs. In view of the same, the following is suggested.
• A mechanism to be evolved that shall allow additional allowances to better
performing employees as incentives upon achieving performance benchmarks.
• These incentives should be allowed only if there are savings that can be co-
related with better performance. Therefore, it is suggested that the system
should be self-sustaining.

6.6 KPI based Incentive Framework

6.6.1 Overview
On perusal of several successful initiatives undertaken by several distribution utilities,
the role of trained and motivated employees emerges as one of the major contributors
to the success of the utilities. Whether it is steady reduction in AT&C Losses, or
infrastructure upgrade, the role of employees has been pivotal. It has also been
observed that these performing distribution utilities have slimmer manpower, but
effective utilisation of these employees has benefited them immensely.

It is also learnt that whenever the organisation goals as well as employees’ goals have
been aligned for e.g., in case of TPDDL, CESC and Odisha DISCOMs, the results
have been much better. However, several other distribution utilities are yet to figure
out how to keep the employees motivated and at the same time accountable. To guide
these distribution utilities, it is deemed fit that a framework be devised which can be
used by the distribution utilities to enhance its efficiency and keep its employees
motivated. It is observed that once the employees are aware how implementation of
any important initiative will benefit them, they tend to make extra efforts to get the job
done. Hence, it is important that the framework should provide such visibility to each
employee.

6.6.2 Incentive Mechanism

Based on several key functions that distribution utility is required to perform, a KPI
matrix has been developed. This matrix objectively specifies the weightage each KPI
activity carries and how the performance on these individual activities shall be

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measured and then merged to derive a consolidated score. It is suggested that based
on different priorities, these KPIs can vary from one distribution utility to another but
it is imperative that it should be specified upfront so that there is clarity with regard
to consequences of success and failures. It is further suggested that to kick start the
initiative, the State Regulator may specify this KPI matrix along with
incentive/disincentive mechanism. The State Regulator may also direct these utilities
to come up with innovative sharing mechanism of these incentives/disincentives
among performing and non-performing employees. This may bring some discipline
and accountability among the employees.
Further, the State Regulator may state that any distribution company achieving a
minimum of 80%(Threshold) mark, shall only be eligible to earn incentives. Further,
some key activity target that are critical in nature may be required to be met in addition
to the threshold limit. Once the utility has fulfilled the KPIs specified by the State
Regulator, incentives be allowed. It is proposed that considerable portion of the
incentive earned should be shared among the employees of divisions/circle that have
achieved their targets or have contributed to achieving the KPIs.
Further, to make this mechanism self-sustainable, it is proposed that incentive shall be
allowed only if there is savings arising out of fulfilling these targets specified by the
Commission. A sample assessment matrix of KPI based Performance appraisal system
is as shown below.

Table 6:6 - Assessment Matrix for a Distribution Utility

Year under
Name of Distribution Licensees:
Evaluation:
Overall Sr. Key Performance Weightage
Category Reference
Weightage No. Indicators (%)
Billing Efficiency should not
(A) Loss
40 (i) be lower than 90% for the 40
Reduction
Financial Year
Collection Efficiency (>99%) 10
State Tariff
AT&C Loss (%) 10
Regulations
Provisional
Billing/Assessment Bills
<5% of total
(ii) shall not be in excess of the 10
Bills
limits specified by the
respective Commission
Regulations,
Compliance to directions -
(iii) Orders 10
Loss Reduction
issued.
Complete Consumer
(iv) 10
Indexing and GIS mapping
Annual Energy Audit at DT
(v) 10
Level

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Year under
Name of Distribution Licensees:
Evaluation:
Overall Sr. Key Performance Weightage
Category Reference
Weightage No. Indicators (%)

SAIFI, SAIDI and MAIFI As per SOP

(B) Reliability 20 (i) 30
Reports Regulation
Reduction
(ii) Transformer Failure Rate 20
YOY
No Planned Load
(iii) 20
Shedding/Rostering
As
Approved Resource
approved
(iv) Adequacy Plan to meet 30
by
power demand
Commission

(C) Capital Timely filing of Capex Plan As per

20 (i) 10
Expenditure for approval Regulation

Timely completion of at
(ii) least 80% of the planned 30
capex
Non-Planned Capex not in
(iii) excess of 10% of planned 20
Capex
Nos. of Overloaded
Transformer (>90% Rate
(iv) capacity) should not be 10
more than 10% of the total
transformers.
(v) No unmetered Consumers 30
Timelines
(D) Regulatory specified
Timely Filing of Tariff
Compliance/Safety 10 (i) under the 20
Petitions
Compliance Tariff
Regulations
Timely submission of
(ii) 20
Compliance to Directives
Timely preparation of
(iii) 30
Audited Accounts
Regulatory Compliance
(iv) with regard to Safety related 10
issues.
Compliance to Regulation
(v) 20
65(3) of EA – 03 - Subsidy

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Year under
Name of Distribution Licensees:
Evaluation:
Overall Sr. Key Performance Weightage
Category Reference
Weightage No. Indicators (%)
Timely issuance of New
Connections – At least 90%
of the applications to be Distribution
(E) Customer
10 (i) disposed of within the Supply 30
Satisfaction
timelines specified under Code
Supply Code and other
relevant Regulations
Adherence to timelines
specified for fault
rectification and complaint
addressal (90% As per SOP
(ii) 30
complaints/request to be Regulations
within the timelines
specified under the SOP
Regulation)
Online Portal for making
Service Requests including
(iii) 20
application for new
connections
As per
(iv) Establishment of CGRF CGRF 20
Regulations
Total 100

It is suggested that the above mechanism should form part of the Regulations so that the
same is enforceable. Further, the above matrix may be required to be appropriately modified
based on the progress of a given distribution utilities on several parameters.

A similar mechanism has also been specified by CERC by way of Regulation in its recently
notified Central Electricity Regulatory Commission (Fees and Charges of Regional Load
Despatch Centre and other related matters) Regulations, 2024 and is applicable to RLDCs and
NLDC. CERC, in these Regulations, has specified broad categories of KPIs to measure the
performance of LDCs and has also approved a detailed procedure for assessing performance
against these KPIs. Under this mechanism, NLDC and RLDCs shall be evaluated based on
their performance on several KPIs and after adding the marks scored against all KPIs,
incentives and dis-incentives shall be applicable.

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7 Recommendations and Way Forward

Improving the profitability of Indian DISCOMs requires a multifaceted approach that
addresses operational inefficiencies, enhances financial discipline, promotes sustainable
energy practices, and strengthens regulatory frameworks. By focusing on them and by
adopting a consumer-centric approach, DISCOMs can overcome their financial
challenges and contribute to the long-term sustainability of the power sector.

The summary of key recommendations to address issues related to sustainability of

Distribution Utilities has been outlined as below.

7.1 Summary of Key Recommendations

7.1.1 AT&C Loss Reduction
[Link] Strengthening Distribution Infrastructure and Metering Systems
1. All connections should be metered and meters should be functional. Ensuring
100% metering will go long way in ensuring viability of DISCOMs.
2. Replacement of ageing transformers and distribution lines with efficient
transformers and advanced covered conductors and switchgear minimises
technical losses.
3. The technological intervention such as Advanced Distribution Management
System (ADMS), Geographic Information System (GIS) mapping and
Supervisory Control and Data Acquisition (SCADA) systems has been found
to be instrumental in flagging losses.
4. Implementing High Voltage Distribution Systems (HVDS) and LT Aerial
Bunched Conductors (ABC) is must to reduce non-technical losses as it is difficult
to tamper with.
5. Implementing DT Level metering and Energy Audits at Distribution
Transformer (DT) Level to map losses.
6. Feeder Separation, wherever agricultural consumption is high, has been found
to be useful in reducing losses and improving load management.
7. Smart meters, which ensure accurate billing and reduce theft, are highly
recommended starting from high loss areas. Retrofitting existing electronic
meters can be a cost-effective option.
8. Implementing prepaid metering systems, particularly in areas with low billing
efficiency, serves as an effective strategy to reduce AT&C losses.
9. Advanced Metering Infrastructure (AMI) significantly reduces provisional
billing which is one of the major reasons for reduced billing efficiency and high
AT&C Losses.

[Link] Ways to improve Revenue Collections

1. Frequent waiver schemes have become a recurring practice which
disincentivises timely payments. Hence, it is advised that such schemes may be
implemented judiciously to maintain financial discipline. Any waivers granted

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by the State Government should be treated as subsidies and should be paid in

advance to mitigate cash flow constraints of DISCOMs.
In some cases, it is observed that tariff subsidies are deferred by State
Governments. As any recovery which is deferred, entails a carrying cost, the
same needs to be borne by the State Government and paid to the distribution
utility. In case of any delay in recovery, the working capital burden increases and
therefore, it is suggested that while computing the carrying cost to be paid by
State Government, the rate of Interest on Working Capital as approved by the
State Commission from time to time may be considered. These measures will
ensure that the distribution utility is not financially prejudiced.
2. The assessment formula specified in case of unmetered connections especially
in case of agricultural consumers, requires revalidation based on current
consumption patterns.

[Link] Displacing LT consumption

1. It is recommended to facilitate the Distributed energy systems, such as solar
rooftops and energy storage systems (ESS), which offer a transformative solution
to reduce losses and enhance grid efficiency.
2. Concept of dynamic pricing may be introduced so that consumers are more
aware of the price of their consumption on real time basis. This may help to shift
demand in a more efficient manner.
3. Explore mini micro-Dam based Irrigation: The possibility of reducing
agricultural consumption through setting up mini and micro dams/ponds,
which can in turn be used for localised irrigation.

[Link] Role of CSR in Loss Reduction - Building Synergy

It is suggested to undertake Corporate Social Responsibility (CSR) initiatives
synergistic with loss reduction strategies. The focus is to be on projects that promote
energy efficiency, infrastructure development, and consumer engagement in high-
losses areas.

7.1.2 Ways to Optimise O&M Cost

a) As expenses towards Terminal Benefits are quite significant in some States, it is
suggested that the respective State Government may either takeover this liability
partially or fully, as has been done in several other States.
b) Instead of outsourcing manpower, it is recommended that outsourcing be done of
activities especially those which are repetitive and non-critical.
c) Predictive maintenance refers to the use of data analytics to forecast when assets
such as transformers or power lines are likely to fail. By implementing predictive
maintenance technologies, DISCOMs can reduce unplanned outages, improve
asset longevity, and avoid costly emergency repairs.
d) IT enabled Systems such as ERP/SAP can be used for Asset Management, which
significantly reduces the administrative cost.

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7.1.3 Ways to Optimise Human Resource

a) Continuation of Leadership (Managing Director) at the helm of affairs for at least
3-4 years is critical to make progress in a sustainable manner.
b) Carry out Manpower Skill Audit and based on the same, Training, Upskilling
and Re-skilling be carried out. This allows Employees to contribute more
effectively to organisation’s performance.
c) Having a Performance Based Incentive Structure motivates employees to
contribute.
d) Aligning employee KPI’s with Organisational goals ensures synergistic
outcomes.

7.1.4 Ways to Rationalise of Cross Subsidies

a) Gradually aligning tariffs with the actual cost of supply across all consumer
categories will arrest migration of cross subsidising consumers.

b) Rather than relying on cross subsidies, governments can explore the option to
provide direct subsidy transfers to vulnerable consumers (residential and
agricultural users) to help them afford actual cost of electricity.

7.1.5 Timely Issuance of Tariff Order

a) It is suggested that ERCs by way of appropriate provisions in the Tariff
Regulations, specify the timeline for issuance of Tariff Orders in accordance with
the Section 64(3) of the Electricity Act.
b) Streamline regulatory review procedures by adopting standard templates and
pre-defined evaluation criteria to reduce processing time. It is suggested to
simplify the tariff formats by seeking specific inputs and to provide with editable
templates and specify the way these data are required to be furnished.

7.1.6 Measures to Avoid Regulatory Assets

a) Regular Pass through of Uncontrollable expenses such as Power Purchase Cost
avoids accumulation of Regulatory assets.
b) Taking over or financing legacy Regulatory Assets by State Governments to
reduce impact of carrying cost and liquidation.
c) Time Bound issuance of Tariff and True up Orders.

7.2 Other Key Recommendations

Apart from the above, there are certain soft aspects that need to be ensured for
sustainability and viability of the distribution utilities. Some of them are as under:

7.2.1 Platform for Sharing Best Practices:

Several utilities have taken some important and innovative steps towards betterment
of its business, and it would be immensely beneficial if these distribution utilities have
a common platform as a Forum of Distribution Licensees wherein these best practices
and other agendas can be taken up. The Forum shall serve the following purposes:

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a) Sharing of Best Practices through regular meetings.

b) Act as a Repository of Knowledge
c) Platform to learn new technological interventions and sector updates
d) Collectively voice their concerns more assertively.

7.2.2 Subsidy Management:

The State Governments need to ensure that the subsidy is paid to the distribution
utilities in advance. Further, the structure of subsidy should be such that it should not
incentivise or promote any kind of malpractice. E.g. one of the distribution utilities
submitted that just because subsidy was only allowed on consumption below 150
kWh, several consumers used wrongful means to remain in that bracket.
7.2.3 Recovery through Fixed Charges:
It has been observed that, fixed cost component constitutes more than 50% of the total
Aggregate Revenue Requirement (ARR) for most distribution utilities. The recovery
through the fixed charge component of the retail tariff is typically limited to around
15-20%. This arrangement introduces element of uncertainty in revenue recovery,
when actual sales fall short of the projections made by the State Electricity Regulatory
Commissions (SERCs) during determination of ARR (Aggregate Revenue
Requirement). In such cases, the utility experiences reduced revenue recoveries
impacting its cash flows and affecting its ability to meet financial obligations towards
power purchase, infrastructure maintenance, and debt servicing.

To address this issue, it is imperative to gradually increase the proportion of revenue

recovered through the fixed charge component of the retail tariff. By progressively
increasing the recovery of up to 30-50% fixed costs with fixed charges, the financial
viability of the utility can be strengthened, ensuring more predictable and stable
revenue streams.

7.2.4 Continued Government Support:

a) It is recommended that the State as well as Central government continue to aid in
extending debt restructuring as well as in providing soft loans and grants for
important capital expenditure through scheme such as RDSS. The focus should be
to clean the balance sheets so that these utilities have required leverage in
executing its plan.
b) The Central Government frames various policies which can have a bearing on
Average Cost of Supply (ACoS) of DISCOMs. In the past some of such measures
taken include:-
(i) Waiver of transmission charges for Renewable Power
(ii) Blending of Biomass
(iii) Reduction of cost of Green Hydrogen
(iv) Loading infrastructure cost for providing connection to Solar rooftops
on Aggregate Revenue Requirement of DISCOMs.
(v) Providing LT Connections upto 150 kW to facilities ease of business,
which may transfer consumer’s losses to DISCOM’s account.

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Before making policy in such matters the State Government and Forum of
Regulators (FOR) may be consulted by the Central Government. Furthermore, it is
recommended that if any cost reduction is to be made to the beneficiaries under
such polices, it would be preferable to provide grants directly to beneficiaries
rather than increasing ACoS and electricity tariff.

7.3 Recommendation Matrix

Based on the analysis carried out in the previous sections of this Report, several sets of
recommendations have been made to target specific issues which are affecting financial
as well as operational viability of the distribution utilities. However, as each
Distribution utility is unique in its operations and have separate set of challenges, not
all recommendations apply for all. Based on the Utility’s specific current standing on
several key parameters, these initiatives are required to be prioritized. Further, while
prioritising, the following two important aspects are required to be considered:
1. Capital Intensity
2. Impact on Operational Efficiency and Sustainability.

The key recommendations as discussed in this Report have been categorised as under:

Figure 15: Recommendation Matrix

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The recommendations are also listed below for easy reference.

Table 7:1 – List of Recommendations

S. No. List of Recommendations

1 HVDS and Aerial Bunch Conductors

Initiating Smart Metering in high loss areas/ high value consumers – Implement
2
Advanced Data Analytics tools for improved analysis and decision making
3 100% Connections to be metered

4 DT Level Energy Audit

5 Prepaid Meters and Automated Meter Reading in areas with low billing efficiency

6 Facilitating Distributed Energy Systems

7 Feeder Segregation - (Wherever high agricultural Load/consumer)

Re-validation of Assessment Formula wherever billing is being carried out on
8
assessment basis.
Setting up of an Association of Distribution utilities – Facilitate Knowledge sharing
9
and Policy Advocacy
10 Community Engagement - Consumer Awareness Campaign

11 CSR alignment with Loss Reduction Strategies - Building Synergy

12 Focus on Manpower Capacity Development

13 Manpower Skill Audit and Rationalisation/Re-deployment

14 KPI/KRA based Employee Accountability and Incentivisation

Tariff Revision - Cross Subsidy Reduction - Regulatory Support for KPI/KRA
15
based Employee Benefit Scheme
16 Network Strengthening - Reducing Overloading of Lines and Transformers

17 Installation of Advanced Distribution Management, GIS, SCADA Systems

18 Implementation of ERP, Exploring IT/AI enabled services/Digital Transformation

It is clarified that based on the progress of distribution utilities on several parameters,

the priority of the above recommendations may change and therefore, the above
recommendations are required to be re-aligned for each distribution utility.

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