Powering discom cash-flows: How ailing discoms can shore up revenues

From measures on metering to bolstering manpower, there are a few steps that can help ailing discoms shore up revenues

Powering discom cash-flows: How ailing discoms can shore up revenues
To meet the enhanced demand, discoms could have bought expensive power at the exchanges. However, their poor cash flows proved to be a hindrance.

By Kanika Balani & Chanmeet Singh Syal

This summer brought to the fore the need to improve the efficacy of our power systems. As a result of the heatwaves, peak power demand rose to 211 GW, the highest ever recorded. Multiple states witnessed severe power outages as the discoms were unable to consistently meet the peak demand. Amid the crisis, the ministry of power, through an amendment to the Electricity (Rights of Consumers) Rules, 2022, directed the discoms to ensure 24X7 supply in cities. To meet the enhanced demand, discoms could have bought expensive power at the exchanges. However, their poor cash flows proved to be a hindrance.

According to a Power Finance Corporation (PFC) report, state discoms owed Rs 2,38,496 crore to power generation companies in March 2020, while pending payments from consumers stood at Rs 2,12,000 crore. Our public discoms lost Rs 0.35 on every unit supplied, totalling Rs 41,000 crore in 2019-20. Over the last few years, the Centre has been consistently trying to revive discoms’ cash flows through schemes such as the financial restructuring plan and Ujjwal Discom Assurance Yojana, and has proposed yet another scheme to pay up discom dues in May. Mounting losses of discoms are mainly because of inaccurate energy accounting and billing, and inefficient collection from consumers. In 2019-20, discoms couldn’t bill 15% of the energy injected into their grid. Another 7% of revenue was lost to poor recovery from consumers. Here are five steps that could help revive the financial health of discoms.

First, prioritise investments for capital infrastructure, technology upgradation, and tagging and metering in high loss incurring areas. Additionally, asset mapping and consumer indexing should be prioritised to know how many consumers are receiving supply from which pole, distribution transformer (DT), and feeder. This would help improve energy accounting. Further, locating the consumers on-site will help discom staff to provide quick redressal services and disconnect consumers with high unpaid dues. Discoms in Delh—Tata Power and BSES—have significantly improved billing efficiency by using GIS mapping and scaling up consumer indexing.

Second, ensure universal energy metering of all sub-stations, feeders, DTs, and consumers. As per the UDAY portal, about 37% of rural and 5% of urban DTs are still unmetered. Further, most agricultural connections and more than 10% of rural households are unmetered. To measure how much energy is lost to pilferage and during transit of electricity, all nodes in the network should be metered.

Third, ensure proper and regular meter-reading, bill generation, and bill distribution to each consumer. According to the India Residential Energy Survey (2020), about 10% of Indian households are either irregularly billed or have never received bills. Discoms could save on operational costs through SMS-based billing by updating consumers’ mobile numbers in their databases. Further, consumers often complain of erroneous billing, which could be avoided through regular post-billing audits. Efficient post-billing audits have partially contributed to the operational improvement of discoms such as BSES Delhi and JVVNL, Jaipur.

Fourth, improve manpower capacity and overall infrastructure at the discom’s sub-divisional offices. In states like UP and Haryana, two engineers in a sub-division typically manage a consumer base of 50,000, and look after billing, collection, supply maintenance, grievance redressal, and on-site disconnections. More on-ground manpower is critical to improve customer satisfaction along with billing and collection. One solution could be that discoms segregate the cadre for revenue-related operations from supply maintenance in local offices, like in Rajasthan and Bihar. Further, smart metering under Revamped Distribution Sector scheme would ease some manpower burden. However, discom staff should be trained and skilled to manage the digitalising grid with a specialised IT cadre .

Fifth, find a permanent solution for collection-related losses from consumers. As per PFC, an average consumer paid their bills to discoms in 160 days in March 2020. Ensuring reliable power supply, timely grievance redressal, and access to easy payment modes could help improve payment discipline. Discoms in UP, Odisha, and Maharashtra have made progress on this front by deploying women self-help groups and kirana shop owners as collection agents in rural areas, in addition to introducing online payment mechanisms. Finally, nudge government departments to explore prepaid supply and directly transfer electricity payments from the departmental budgets. In FY 20, unpaid electricity dues by government departments and subsidies by state governments stood at Rs 97,000 crore. Unpaid subsidies worth Rs 6,365 crore further exacerbated the situation for discoms. Hence, state governments must transfer subsidies upfront.

The rules and regulations mandating the discoms to supply reliable power to the consumers already exist. Periodically, inefficient discoms could be penalised by regulators. In addition, regulators must also ensure that tariffs are reflective of the cost incurred by the discoms. If reviving cashflows isn’t prioritised, then discoms would remain financially unviable.

(The authors are respectively, programme associate, and programme lead, CEEW)

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