Saturday, April 23, 2011

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.
  4. Under missing information, the contract is not aptly designed thereby risking future violation or controversies endangering end-customer interests. Some elements of existing poor design:
    • Competitive bidding done purely on the basis of one parameter only – the input rate (purchase price per unit of power from the utility valid for one full year), completely missing upon the aspect of innovations that each bidder could bring and sharing those benefits with the utility
    • The benchmarked input rates quoted by the utility is function of projected AT&C loss reductions over years only and does not account for utility’s own cost of supply and time plan of invested capital expenditure and arising benefits.
    • Subsidy benefit from government is passed on completely to the franchisee increasing their revenue share. Under this the DF will be incentivized to sell more power to the subsidized customers to increase its revenue share.
    • Since DF revenue is based upon number of units used/sold, it does not have incentive to take upon DSM or load management activities and signal appropriately to the utility to help him with optimal sourcing and also support lower/no load shedding in DF area
    • Both utility and bidders do not have clear projected returns from this engagement over the project years. A clear risk-return analysis for both involved parties does not exist.
It is suggested that the utility appoints a third party to do a good baseline data preparation - integrating real-time measurements and all secondary data already with the utility. This information could go as common information to all interested bidders (at separately charged fees by third party vendor or made inclusive of utility application fees) to avoid each of them trying to secure some insiders information through parallel means. In any case with winning bidder, utility takes up a parallel joint audit for validating baseline and it is just that this process could be done before the bidding.

pManifold's Distribution Franchisee practice could offer such DF site-intelligence report to better estimate load growth, capex roll out plan, and investment viability.

Post by: Rahul Bagdia @ pManifold.

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