Limitations of existing baseline data shared for Power Distribution Franchisee bidding

The current approach to furnish baseline information for Distribution Franchisee (DF) RFP undertaken by the utility has following limitations:

1. Very high level indicators (on distribution losses; collection efficiencies; customer mix and connected load distribution, arrear’s for each consumer class, brief count of network assets) are shared with no systematic causal analysis to allow bidders to diagnose network's status-quo for capital investment projection. This hampers calculated and informed bidding to happen.
   
   
2. With highly fragmented databases and lack of integrated measurements & good practices on utility's side, the integrity of the top-level data provided is looked upon with doubt, thus making it highly risky investment for the bidders.
   
   
3. In lack of measurements and system level analysis before bidding, the utilities themselves do not have right judgment about the required expenditure and potential revenue increase the area could give under able DF project time. The arising low confidence let them compromise on various aspects of good contract design and post monitoring and not able to get full benefits of the DF model.

Impact that could come from Utility Measurements, Analytics and Monitoring

There are ongoing lot of controversies about Power Distribution Franchisee (DF) applications and transparency of businesses running them. While some of them are definitely right and need to be intervened, but many of them are arising from missing information. Our earlier blog 'Lack of good baseline data & reporting leads to irrational Power Franchisee bidding' discussed the impact of this missing information on all stakeholders connected to Distribution Franchisee.

A perspective 'What's there in Distribution Power Franchisee?' was shared earlier. In line to that and at an abstraction level of a model, DF is about driving Measurements & Analytics, establishing baseline and monitoring performance to excel baseline and set a new one. The transition to a private ownership is one approach, which is believed to yield faster results. But it is not impossible to drive efficiency through state utilities by strict enforcement of driving interventions based on Measurements and Analytics. R-APDRP is one such attempt, but the gaps in handling the associated change management has led to increasing questions on real impact of the scheme - 'R-APDRP: Missing understanding on usability of technology by utility people'

Below is a visualization of positives that could come in the Indian power distribution sector through deeper acceptance and embedding of philosophy of measurements, analytics and monitoring.

Key Performance Indicators (KPIs) for Distribution Utility

Utility Performance Monitoring is one of major gaps in Indian distribution utility or DISCOMs. The major reason is missing measurements and analytics to drive decisions and implementations. Even the MIS that gets created (inspite of its questionable integrity) is not effectively used to control distribution system optimally. One abstraction is to look utility as a complex distributed network with multiple stakeholders/nodes (various end consumers, linked to DTCs, feeders and substations forming a network and one network interconnected with others). Each stakeholder has different metrics of performance and it is this mismatch of KPIs along various stakeholders, that make the network run non-optimally.

It is attempted here to give readers a detailed list of KPIs that could be applied to benchmark performance of a utility with other utilities or with itself across time. The list is not claimed to be complete, but have been arrived with good amalgamation from available literatures. The various broad categories of KPI's identified in utility distribution are:

1. Operational Performance
2. Operational Cost & Management
3. Financial Performance
4. Customer Service Quality
5. Energy Efficiency & Demand Side Management (DSM)
6. Workforce (Including Health & Safety)
7. Sustainability

Lack of good baseline data & reporting leads to irrational Power Franchisee bidding

The reported success of Bhiwandi Power Franchisee model has attracted more private players and has increased competition for good of the sector (see our earlier blog on 'Many new corporates entering into emerging Power Distribution Franchisee race'). However the very basis of the Power Distribution Franchisee (DF) contract, the baseline data ('information') provided as part of the RFP (Request for Proposal) is not trusted by the bidders driving  irrationality in the bidding. 

Impact on Bidders:

1. High business risk for the DF due to non-trust worthiness of the baseline data provided by the utility: Crompton Greaves Ltd. (CGL) backed from awarded Nagpur DF tender and in the process wasted 2 years. Company quoted that the base line data provided to them was not correct and its not viable for them to service at their quoted input rates.
   
2. Repeated efforts by all bidders to gain confidence on baseline data: Since utility does not take responsibility of the data it provides in the RFP, it is left to the bidders to figure out this information and speculate their bid with little confidence on their business plan and projected returns.

Power Distribution Franchisee - Evolution from Rural to Urban and back to Rural

The Power Distribution Franchisee (DF) model is a precursor for privatization of distribution business in India. Under the model, the state retains ownership of the distribution asset and only leases O&M for defined contract period. On account of heavy capex already laid by the Government and its desire to keep its influence on this major portfolio, DF model will be the next generation model before the sector will start seeing full privatization.

The idea of DF first originated from Rural Electrification with the need of a low cost local agency to manage billing and collection at remote villages. Now that model remains no longer economically viable because of shortage of power directed to rural feeders. Then the shift of DF model application from Rural to Urban happened with piloting of new emerged Input Franchisee model for urban cities with heavy ATC losses. The selection of urban cities for DF model is driven by they having:

1. steady demand loads
2. relatively better collection efficiency, 
3. less subsidized customers 
4. good power supply
5. political will and attention

Trends in Power Distribution Franchisee bidding RFPs - Qualifications and Bidding model

The Franchisee model in Power Distribution has picked up well with many RFPs post Bhiwandi pilot. Below is a comparison across different RFPs and states to enable a easy comparison around bidding qualification requirements and bidding structure. This should help bidders to form macro perspective of blocking their investment and efforts for new Distribution Franchisee bids. Earlier blog 'Market Status - Ongoing and coming projects in DF' discuss new prospective bids. MSEDCL (Maharashtra) has next potential DF sites in Malegaon, Ahmednagar, Beed, Parbhani and Hingoli.

Power Distribution Franchisee RFPs comparison (Source: pManifold)

(Click on the image to see the enlarged view)

ERP role in emerging Distribution utility reforms

Indian Power sector is in a rapid growth phase and in a phase of undergoing rapid change - change in a way they used to operate. A special emphasis is laid by the government on the electricity distribution industry to improve their operational and business efficiency. On an average the SEBs suffer from an ATC loss in the upwards of 30-35 % and in some areas even more. The R-APDRP programme has laid emphasis on the reform and implementation of IT systems (see our earlier blog on R-APDRP). ERP (Enterprise Resource Planning) is one of the most important enablers in providing an environment for integration of utility applications.

The typical characteristics of an electricity distribution business are:

 - Wide Geographic delivery areas

 - Infrastructure is distributed

 - Equipment installed and maintained for 30 years or more.

 - Uncertain business models

 - Evolving Deregulation

REC Framework - Emerging alternative opportunity to avail carbon benefits for Green Generators

REC (Renewable Energy Certificate) is a tool to implement Renewable Purchase Obligations (RPOs) for buyers like state electricity distribution utility, open access users and captive generators from conventional sources from sellers of renewable energy generators. It is an environmental commodity that:

1. captures the environmental benefits of renewable electricity generation
2. provides a market mechanism to incentivize Renewable Energy producers
3. Market is created through requirement on the various companies to have % RE in portfolio

RECs – a market ready for take off

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Workshop compilation from pManifold - Utility Monitoring and Power Distribution Franchisee: Enhancing SEB's Performance

pManifold as Knowledge Partner to IIES 2011 organized a workshop on 'Utility Monitoring & Distribution Power Franchise - Enhancing SEB's Performance'. The workshop was co-chaired with domain experts Mr. Murhari Kele, Supt. Engg. MSEDCL, Nagpur and Mr. Prabhakar Kukde, Ex-Direcor, Tata Power.

pManifold Utility DF_IIES_Workshop_report

pManifold Utility DF_IIES_Workshop_report

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Components of AT&C losses - mystery behind the number

Ever wonder what it means by Aggregate Technical and Commercial (AT&C) losses in power sector? It is one number that affects all stakeholders of power chain directly including the end-consumers. If AT&C losses are higher, then your distribution utility or DISCOM would go ahead making a case to its state Electric Regulatory Commission (ERC) during its Aggregate Revenue Requirement (ARR) filing for new and increased tariff orders. It works with DISCOM making a case that it has procured power of 'X' amount, but have received only X-- amount on account of AT&C losses and now with increased demand and rising supply prices and make up its arrears, it needs to increase tariff for next year.

R-APDRP: Missing understanding on usability of technology by utility people

The Restructured Accelerated Power Distribution Reforms Program (R-APDRP) of the Government of India is an ambitious program aimed at achieving significant loss reduction of the distribution utilities in the public sector. The Rs. 30K cr. deployment by 2012 makes it probably one of world's biggest scale IT deployment in utilities. The program has two parts. The Part-A, aims at using IT to create base line data and Part-B aims at strengthening the electrical network for reducing losses and improving the level of service delivery and quality of power to customers.

Performance Analysis of Distribution Franchisee - Bhiwandi Case study by Torrent Power Limited

Bhiwandi, Maharashtra saw the first successful pilot of Power Distribution Franchisee (DF), with Torrent Power Ltd. (TPL) as selected Franchisee and MSEDCL the original licensee. The model adopted was Input based franchisee - with TPL agreeing to purchase power from MSEDCL at the input point to Bhiwandi circle at year-wise fixed input energy rate (Rs./kWh) for a contract period of 10 years and executing distribution responsibilities including metering, billing, revenue collection, repair, maintenance, O&M cost of network, consumer service, capital expenditure, allocating new connections etc. With operations commenced from 26th Jan 2007, TPL has completed a successful milestone of 3 years of its operations with ATC loss reduction from 58% to now 18.5%.

Many new corporates entering into emerging Power Distribution Franchisee race

Power Distribution Franchisee has attracted various big corporate houses (see earlier blog). A distribution below of major players bidding in the market shows that most companies has come from services sector of Infrastructure and Power businesses. Those in Infrastructure like GMR, SMS, Ashoka Buildcon, A2Z & Kalpataru has earlier already diversified into Power sector primarily into Generation (balance of plant and EPC), distribution (substation EPC) and transmission (EPC). A more recent trend of these Infra companies further getting into generating and trading power (thermal, renewables, waste) is noteworthy. Now if absorbed into Distribution Franchisee, their portfolio will be pretty much covering all of power sector and building scope of economy.

Market status: Ongoing and coming projects in Power Distribution Franchisee

Inspired by the success of the Power Distribution Franchisee model of electricity at Bhiwandi, Maharashtra, many other states have started piloting the model. MSEDCL is probably the most active utility with piloting Power Distribution Franchisee model - Bhiwandi, Nagpur, Jalgaon and recently Shil, Mumbra & Kalwa with many others in pipeline in coming short time.

Challenges with scaling Power Distribution Franchisee Model

Power Distribution Franchisee (DF) remains a new and big canvas in India's Power Distribution sector with few painters and there is not much history to build and learn from others. While 'learning' from 'doing' is way forward, but still there remains a gap in Distribution Franchisee Thought Leadership to establish and quantify DF's potential impact and lay strong 'model' driven design. So while different tuning of parameters could happen from one implementation to other, the base model should grow stronger with collaborative knowledge and best practices sharing.

Some critical design issues that needs addressing to scale Power DF model are discussed below. The issues are addressed in order of execution of DF model.

1. Performance benchmarking of power utilities: This aspect is seriously missing in utilities inspite of enormous MIS and Energy Audit data available. At first place, the data completeness, it's authenticity and its time aggregation process to produce MIS report and KPIs is highly questionable. The derived operational KPIs like SAIFI, SAIDI, ATC etc. have hence lost their absolute meanings and its always chasing some incremental improvement without focusing on the end-consumers. Also, since the utility financial losses could be easily passed to end-consumers in next year ARR and increased tariff petition, there is not much good incentives for utility to perform. There is a need to develop a more integrated framework for performance benchmarking and regular monitoring.
   

What's there in Distribution Power Franchisee?

With ongoing operationalization of Distribution Franchisee (DF), one common question that keeps hitting again and again is 'Why need of DF? What it can do, which utility cannot or have not?'. While answer to this is pretty subjective, I would share my opinion in 3 breakups:

1. What are key issues with Distribution Utilities?
2. How that has constrained key stakeholders potentials?
3. Does Distribution Franchisee has solutions to above?

Distribution Power Franchisee - Evolving PPP model

Distribution Franchisee (DF) model has only recently picked traction since 2009 after successful demonstration by Torrent Power Ltd. at Bhiwandi, Maharashtra, which got operational in 2007. The success there has sparked private businesses interest into the sector with more than 30 corporates jumping into the fray. Many of the businesses comes from very diverse background of telecom, IT, infra, media, iron & steel etc. and it will be there new entry into the power sector, starting with distribution.