Tuesday, June 25, 2013

Part 1 of 2 - Suggested amendments in National Tariff Policy

Rahul Bagdia is Co-Founder and Director
of pManifold. The co. specialize in Utilities and
Emerging Markets Research and Advisory,
and is focusing upon operationalisation and improvement in
Service Delivery of Power Distribution models.
Ministry of Power (MoP) is reviewing the Electricity Act 2003 and the National Tariff Policy 2006. 

Federation of Indian Chambers of Commerce of Industry (FICCI) recently had a small group meeting to discuss amendments in these Acts and invited suggestions. 

Mr. Rahul Bagdia, Director, pManifold Business Solutions, shared below suggestions to FICCI team on potential amendments to further create more Market governed healthy power sector in India. These are independent and individual views of the author and not to be associated with any of his affiliation with any company or whatsoever.  

Our existing Policy framework is strong; however its enforcement has been weak. The new amendments in addition to driving more market led changes, should act as better facilitator for measuring performance and enhancing governance in our utilities. Below suggestions are directed in Power Distribution space only.

  1. Ensure availability of electricity to consumers at reasonable and competitive rates;
  2. Ensure financial viability of the sector and attract investments;
  3. Promote transparency, consistency and predictability in regulatory approaches across jurisdictions and minimise perceptions of regulatory risks;
  4. Promote competition, efficiency in operations and improvement in quality of supply.

Below suggestions are given keeping in line above objectives:

The integration of Generation, Transmission, Distribution and Consumption of power is highly missing leading to inefficiencies at each function with end burden on Govt. and end-customers. At one end we have high power cuts/deficit faced by end-customers, leading to forced usage of inefficient high cost captive backup power, and on other hand, we have great proportion of Generation sitting idle (or running on low PLF). This is indication of weak information collation (or sharing) to signal timely corrective measures at each function units.

Much of this is because of different agency issues across each function and missing information visibility across the value chain. The missing projections on customer consumption and payment is adversely hitting the Trading, Transmission and Generation functions, with intensity worsening upstream of the supply chain. (In Supply Chain jargon, this is known as Bull Whip effect.)

Much of power sector problems are people driven. Transparency with key information across stakeholders will drive open discussion for better resolution.
·         A minimal information set should be identified that should be regularly shared with both immediate upstream and downstream Supply Chain Partners (and in limited form also made public) to give perspective on broader operational and commercial performance for better planning and preparations at the broader supply chain level. Just replying on central nodal agencies is not sufficient.  
·         Above will enhance broader governance in each utility functions, and at the same time will create opportunity for Private experts to use data and suggest better viable options. (This shall be another level of competition in the value chain.)
·         For example, the Distribution Utility (whether Discom, Private, or Franchisee) should be made to share following regular information:
o   Input Energy: Power purchase source, quantum, contract (long/short), avg. price (daily)
o   Supply Energy: Feeder and DTR wise energy supply (daily)
o   Operational Performance: DTR ranking on basis of downtime (planned vs. unplanned), Avg. Billing Rate (ABR) and Collection Efficiency (monthly)

Broader Performance Monitoring of our Utilities is missing even against set existing SLAs.  SLAs also need to be made specific, measurable and accountable. All Bid documents should get vetted for specific performance monitoring terms and conditions.

It is important that strong stakeholder engagement and governance is brought in various phases of projects starting from Bidding, Project Execution and Project O&M.  
·         Most independent view can come from customers (the direct stakeholders). Hence Customer Satisfaction (CSAT) monitoring should be deployed across all phase of the projects and results shared with relevant stakeholders for increased governance. Definition of ‘customer’ varies across project life cycle.
o   For Bidding phase: Utility Licensee should conduct Satisfaction survey from all Bidders pre and post bid submissions (and share results with all bidders). This shall help establish bid governance in broader bidding community.
o   For Project Execution phase: Utility Licensee should get regular & independent satisfaction/ performance audit for project execution by Project Operator(s). The delays and quality should be accountable and further used for strengthening selection /evaluation.
o   For project O&M phase: End customers (who are paying for services) should be consulted for their opinion, preferences and satisfaction on existing service delivery. (In case of Distribution, this shall mean reaching out to all categories of electricity customers. The 6 monthly results should be made public, and tracked for improvements. CSAT should be appropriately incorporated into Operational performance management.)
·         CSAT should be incorporated as additional important utility KPI in addition to existing SAIFI, SAIDI, CAIDI etc., which have high consolidation complexity, and hence prone to easy manipulation/error.
·         All DTR metering should be encouraged at first level. At second level, wherever required, further group metering should be encouraged at a level below DTR.

The second blog in the sequence can viewed at: (Part 2 of 2: Suggested amendments in National Tariff Policy)

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