Views on 'Future of Power Distribution Franchisee Model in India' by Dr. Murhari Kele, CE (Mumbai), MSEDCL

Dr. Murhari S. Kele,
Chief Engineer,
MSEDCL, Mumbai.

Power Distribution Franchisee (PDF) model in India saw mixed results across various operating areas so far. While the model saw good momentum after Bhiwandi success story with various states opting for the same, but there is no second success story to further boost the growth of the model.  

pManifold team recently spoke with Dr. Murhari Kele, an industry expert in Power Distribution Franchisee to understand his viewpoints on Future scenario of model. (The views here are personal views, and not to be associated with any company in any forms)

1. Power Distribution Franchisee (PDF), one of the reforms in power distribution utilities has seen ups and downs since its inception in 2007? What is your opinion on privatization of Indian Power Distribution Utilities, and opting Franchisee model as a possible precursor for same (compared with other private models like Delhi PPP model, PPP concessionaire, etc.)?

After inception of The Electricity Act-2003, SEB’s were unbundled in various activities. Power distribution reforms through National Tariff policy & National Electricity policy speaks about the private sector participation in public utilities through various models, like PPP model, franchisee model or full privatisation. These types of operating models are used for turnaround of loss making utilities. Each model is having its own characteristics with risks & challenges. But based on performance of various models for last five years, it shows that private ownership was superior both for PPP & to public ownership. With private ownership there were two models namely Privatisation & second Franchisee. In terms of reduction of system losses the performance of both PPP model in Delhi  & Franchisee model in Bhiwandi, the results were dramatic & comparable. These were obtained not only by better management practices, better surveillance etc but also by providing superior services to customers. 

New Initiatives / steps taken by UGVCL to improve operational efficiency

The Uttar Gujarat Vij Company Limited (UGVCL), a second largest state discom in Gujarat serving almost 2.9 million customers, has its network spread across an area of 49,950 Sq. Km. It was the rated the second best state power distribution utility, by the Ministry of Power (MoP), with due recognition to its excellent performance in the financial front, and ensuing operational improvement and consumer-friendly practices.

The discom is forefront in taking effective steps to improve operational efficiency and provide better services to customers. Some of the steps taken have been the introduction of system strengthening schemes, expansion of metering coverage, installation of special design transformers that help in peak load management, an insurance policy to compensate for crops destroyed by fire due to electrical line faults and launch of a photo billing system. Through these, the utility has been trying to control its rising aggregate technical and commercial (AT&C) losses but also help in peak load management through the installation of advanced metering infrastructure.

A brief outline on different types of steps taken by the discom are mentioned below:

Operational performance

The utility’s AT&C losses have been increasing since 2010-11, when these stood at 6.63%. The losses touched 10.12% in 2011-12 and 14.07% in 2012-13; with increase in losses being attributed to low metering coverage of agricultural consumers, which only accounts for 36.75% in 2012-13, as compared to 28% in 2008-09, out of the total 100% metering provided. To address this issue, the utility

• Releasing all new agricultural connections at metered tariffs. In 2013-14, it released 22,278 new agricultural connections and additional load of 201 MW for existing agricultural connections, by installing 3000 km of HIgh Tension (HT) lines, and 55 agricultural feeders, following bifurcation of existing agricultural feeders
• Launched a state sponsored scheme viz., Jyotigram Yojana, introduced in 2006, which ensures 24×7 three phase quality power, the utility supplies electricity to scattered farm-houses, through feeders with specially designed Jyotigram transformers
• Installs AB conductor cables in theft prone areas, undertaking mass anti-theft drives and replacement of electromechanical meters with static meters to bring losses below 20% for feeders with higher losses   
• Ensures timely and accurate billing in order to reduce losses by initiating photo billing system for 0.2 million consumers, sending billing information to consumers by SMS, and installation of radio frequency (RF)-based single phase meters to avoid human intervention in meter reading
• Ensures energy conservation, cost efficiency and reduction in distribution transformer losses, the utility has introduced special design transformers – pilot advanced transformers (PATs) which provides single-phase power supply to farmers after the eighth hour; and this concept won the utility the 'India Utility Knowledge and Networking Forum (IUKAN) 2014 – Best Practice Award' under the “Innovations and Others” category.

Smart Grid Pilot

UGVCL is one of the utility short listed for smart grid initiative under MoP. The project is being undertaken in two districts – Naroda and Deesa. The Rs. 487.8 million pilot project will cover about 375 substations across these districts. The scope of the project covers AT&C loss reduction, peak load management, developing advanced metering infrastructure (AMI), optimisation of unscheduled interchange charge, reduction in meter reading cost, outage management, load forecasting, demand side management and demand response, introduction of asset management systems and power quality management.

Five consortiums were shortlisted for proof of concept (PoC) in March 2014 for demonstrating their AMI connectivity solutions with 300 meters each. On basis of evaluation of PoC and bid price, the contract for the project will be awarded in September 2014. Few challenges faced by UGVCL at tendering stage includes interoperability issues, limited expertise of Indian companies, and absence of mechanisms to test imported technologies in India.

Future Plans

In a nutshell, the utility’s future plans are aimed at strengthening and upgrading its grid infrastructure through various initiatives like adding distribution lines at 11kV and LT levels, including the smart grid pilot. Loss reduction measures and ensuring consumer satisfaction through quality power supply are its top priorities, going forward. 

Please note: Above is the summary of the article on Power Distribution Franchisee model published in PowerLine magazine, April 2014.

Posted by: Kunjan Bagdia @ pManifold

Mobility solutions from Mobicule for Utilities in India

Mr. Siddharth Agarwal, Founder
& CEO, Mobicule

The global market has experienced a paradigm shift with the introduction of SMAC technologies. The letter ‘M’ which stands for 'Mobility’ has changed the opinion of undertaking business and has been dominating in the minds of technocrats, businessmen, and the investors. It does not surprise us to perceive industries shifting to mobile devices where India accounts more than 900 million subscriber base. Catching with the trend various innovative mobile apps has been developed leading to interesting business case. It is believed that mobile app download will grow exponentially and if this is the scenario, one of the biggest beneficiary of these technologies can be Indian utilities aiming to improve their efficiency and streamlining their operation through more focused customer engagement.

pManifold team recently spoke to Mr. Siddharth Agarwal, Founder & CEO, Mobicule to understand how the mobility solution is changing the landscape of Indian utility markets. The below shared are author's personal views and not to be associated with any of their company's association.

Evolving Distribution Franchisee Model across states

The Ministry of Power’s financial restructuring plan has made the introduction of private participation in distribution as one of the mandatory conditions for availing the benefits of scheme (as a result of high AT&C losses, low IT involvement and huge financial losses). Whilst State Governments’ (except Delhi and Odisha) have not undertaken privatisation of Discoms, Distribution Franchisee (DF) model has emerged as one of the attractive options to involve private players for enhancing distribution operations. The success of Torrent Power as a DF player in Bhiwandi in Maharashtra has fuelled the other states to adopt this model. Other operational areas include Agra (UP), Nagpur (Maharashtra), Aurangabad (Maharashtra), Jalgaon (Maharashtra) and Sagar (MP).

Relative DF Attractiveness Matrix for Jharkhand and Mumbra RFPs

Recently, new opportunities have emerged in Jharkhand and Maharashtra in Power Distribution Franchisee. See our earlier blogs on Mumbra (Maharashtra) and Jharkhand:

• MSEDCL released revised RFP of Shil-Mumbra-Kalwa
• Jharkhand Distribution Franchisee first pre-bid meeting 

pManifold's DF Attractiveness Matrix on RFP data provides a quick study on new areas in Jharkhand & Maharashtra and its comparison with old one's like Nagpur, Jalgaon, Aurangabad, MP's 3 regions, etc. A coloring scheme is used for better visualization for favorable Distribution Franchisee parameters across each attributes.

Escrow payment introduced by MSEDCL for Shil-Mumbra-Kalwa

Our earlier blog covered the 'Technical' and 'Financial' criteria of Shil-Mumbra-Kalwa, followed by listing of key performance parameters.

MSEDCL, from its past bid experience, is facing payment recovery issues from few operating distribution franchisee companies. In a recent development, MSEDCL has enforced strict performance requirements from existing franchisee to participate in its latest bid at Shil-Mumbra-Kalwa. This is by way of the following two clauses which have been added freshly:

• A certificate of 'No Outstanding Dues' of utility (licensee) has been made mandatory for operating distribution franchisees.
• Recovery of six months average billing amount in advance from future franchisee.

The above first condition will further increase pressure on existing franchisees to clear dues in case they wish to participate in new bids. The latter condition will ensure that only serious bidders with strong appetite to bear initial costs will participate in the future DF bids.

A slight change in QR is made, allowing any Distribution Licensee to participate irrespective of the customer base and no limitation of 40K customers.

Another interesting piece to further strengthen DF model is being experimented in this bid, with start of Escrow account, to derisk the Licensee from non-payment by DF operator.

The Shil-Mumbra-Kalwa bid process is through e-tendering and the revised RFP can be downloaded from the following website of Mahadiscom: http://works.mahadiscom.in/eTender/etender. A non-refundable fee of Rs. 2 lacs as tender purchase fee is to be paid online. This practice of MSEDCL of charging fees on RFP downloading is getting rightly challenged by bidders, resulting into risk of lower bid participation, fearing which RFP sale date has been extended to 20th June. (Please take a quick poll to register your vote to agree/disagree on this issue, and help set right practices to improve bidding procedures)

See revised Corrigendum.

Posted by: Kunjan Bagdia @ pManifold

Orissa Government invites EOI for 'Smart Grid' Solutions - A new variant of Distribution Franchisee

CESU, Orissa has invited Expression Of Interest (EOI) on "Smart Grid Solutions for Energy Management & Energy Efficiency" (SGS-EMEE) on additional revenue sharing basis through Built-Own-Operate-Transfer (BOOT) model in its 12 divisions (in 4 circles), out of 20 divisions. The project is based on "Power Distribution Operations in Identified Divisions" model for a contract period of 5 years.

This CESU model differs from the prevalent 'Input Based Distribution Franchisee (IBDF)' model and also 'Collection Based Revenue Distribution Franchisee (CBDF)' in following key aspects:

1. Capex Investment: Operator is expected to bring investment only for Smart Metering (LT & HT customers, transformers and 11kV feeders), AB conductors and customer services. So this is a capex light model. Rest investment will be done by the Licensee. This model is mainly intending to curb commercial losses and improve customer services through a private player. The Licensee will take care of the Technical losses through network investments.
2. Scope of work: This model's scope of work (as described below) is a sub-set of IBDF model, while a super-set of CBDF model. 
3. Key Bidding Parameter: In this model, the bidder would have to bid on percentage revenue sharing with the licensee for all 5 years (as described below in details). The incremental revenue generated i.e. RPU multiplied by energy input over and above the baseline data in the project area shall be shared between the Project Developer and CESU in the ratio of 60:40 in the 1st year of operation and thereafter 50:50 in the 2nd, 3rd, 4th and 5th year. In IBDF model, bidding happens on 'Input Price' for all tenured years, usually ranging from 10-20 years.
4. Tariff Indexation: In this model, tariff changes are impacted through direct proportionate changing of base revenue per unit (RPU). In IBDF model, there is more involved calculation of tariff indexation ratio calculated monthly and accordingly changes in the quoted bid 'Input Price'.
5. Contract period: This is a short contract (5 years) light capex model with investment to be made in first 3 years. IBDF, on the contrary, being a high capex model, is a long contract (15-20 years) with most investments done in 10 years.

Can Customer Engagement at Utility help expedite AT&C loss reduction?

Some recent discussion on best practices at Linkedin Power Distribution Franchisee group have started discussing the role of Customers in helping reduce AT&C losses. Some key excerpts:

" .... I strongly feel that key factor for reduction of AT&C loss is very much linked with consumer care initiatives and winning consumer confidence. With the support of consumer group one can control the theft by providing new connections thr' camps etc, one can initiate and execute loss reduction schemes in fast mode, one can get information about theft at particular location etc." (Sr. utility professional with experience at one of biggest private utility) 

" .... The whole problem with Utilities & Consumers relationship whether the utility be govt controlled, pvt utilities, Joint venture or DF, is the major trust deficit. Any utility ownership change when it come to DF or complete Pvt, utilities starts its business with an approach that all consumers are stealing so should start with dent on it whereas consumers always thinks of Utilities as somebody there like a Police which is there to unnecessary harass consumers..." (Mgmt. Consultant in Utility domain) 

" ... Real work can be started somewhere after Oct and with this they will get around 5 months to get ready for next summer peak. In this 5 months, they can focus on low hanging fruits for reducing losses and enhancing recovery along with work of increasing confidence in consumers by starting customer centres, call centres etc. With this they will get almost 7 months to positive brand image before next summer peak or storm winds ( which are generally in last Feb early March) in Chambal River areas...." (Sr. utility professional with experience at one of biggest private utility) 

"In common nature, the employees of MPSEB will do the maintenance work half heartedly. It results, the failure of Distribution Transformers, Power Transformers and Breskdowns of 33, 11KV & LT lines. So the DF's Material department have to plan for procurement of materials and appointing Contractors for the above activities. Otherwise, the harassment from consumers will be faced by field officers on large scale"  (Sr. utility professional with experience at one of operating Distribution Franchisee)