Group 10

DISTRIBUTION STRATEGIES OF PUBLIC UTILITIES WITH FOCUS ON ELECTRIC UTILITY IN INDIA

Anshika Jain Ishaan Ganguly Pallavi Mohan Riddhi Malhotra Shivan Nair Sonika Toora Vibhor Garg

TABLE OF CONTENTS
Topic 1. Introduction What are Public Utilities 2. Objectives & Metholodogy 3. Literature Review (including Limitations) 4. Data Analysis
I.

Pg No.

Product :
a) Types of Public utilities b) Organizations involved in public utilities c) Focus of our study- electric utility d) Organization studied - Power Grid Corporation of India Limited

II.

Process :
a) Types of distribution channels adopted by them b) Flows of energy in the distribution channel c) Problems faced by intermediaries involved in this distribution

III.

Outcome :
a) Drivers of success in distribution of electricity b) Innovations in distribution of electricity

5. Conclusion 6. References

Ch 1 : INTRODUCTION - WHAT ARE PUBLIC UTILITIES

Public utilities are defined as companies that supply what are considered basic or essential services to homes and businesses, such as electricity, gas, telephone, water and sewer connections. Public utilities are those business accomplishments that provide necessary services to the society. The undertakings dealing with the supply of electricity, gas, power, water, transport etc. are all covered under public utility services. These are dominant in the developing countries. All the above-mentioned things are needed in everyday life of people. The undertakings dealing with public utilities require large-scale capital investments. It is also expected from them that the services are provided at reasonable rates. Public utilities tend to be monopoly concerns. The entry of other entrepreneurs in these fields is generally barred by the government. The purpose of making public utilities as monopoly concerns is to serve the consumers in a better way and to provide services at cheaper rates. It is more economically efficient to have only one business provide the service because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain. A consequence of this monopoly is that federal, state, and local governments regulate public utilities to ensure that they provide a reasonable level of service at a fair price.

Certain special privileges are also given to these concerns with a view to improve their working. The privileges and special powers that are given to public utilities are helpful in maintaining regular and satisfactory supply by them. The privileges and special powers are conferred by the legislative authorities of a particular country. Public utility concerns may acquire and use public property, if necessary. Public utilities are meant for serving the consumers. The supply of necessities by government saves consumers from exploitation by profit seeking businessmen. In case of railways, for example, large amounts are spent on providing railway lines, purchase of engine and wagons and constructing railway stations. In the same way electricity concerns require large investments for various purposes.

Public utility undertakings are generally created by parliament or state legislatures by passing special acts. In many countries railways are set up by the act of parliament and electricity boards are set up by different state legislatures.

The demand of a public utility always remains high. So there is no risk of any kind of fall in demand. There is no fear of competition because of its monopolistic character. The demand of these services is both direct and derived. The nature of demand and laws of returns also affect the price. These concerns operate under decreasing cost conditions. So, they should charge reasonable prices. The pricing policy of these undertakings is also generally guided by the government for public welfare.

A public utility is entitled to charge reasonable rates for its product or service. Rates are generally established according to statutes and regulations. The utility usually files a proposed rate schedule with the state public utility commission for approval. The commission holds public hearings to help decide whether the proposed schedule is fair. The commission may also require increased levels of service from the utility to meet public demand.

Ch 2 : OBJECTIVES & METHODOLOGY Ch 3 : LITERATURE REVIEW (including Limitations) Ch 4 : DATA ANALYSIS

I. PRODUCT a) Types of Public Utilities
1. WATER Providing high quality drinking water Managing food control and storm water Collecting and treating wastewater Organizations involved: Central Water Commission and various Municipal Corporations

2. ENERGY Evaluating various sources of energy Providing information on Energy Conservation Undertaking Energy Conservation Organizations involved: Public Sector Units like NTPC, Power Grid of India, and various private sector players

3. TRANSPORT Refers to municipal or regional public transport Eg. Trains, Buses etc. Open to all on a non-reserved basis Organizations involved: Indian Railways, DTC etc.

4. TELECOMMUNICATION Includes a set of practices that promote reliable network performance

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Organizations involved: BSNL, MTNL, Airtel etc.

b) Organizations involved in Public Utilities :

Firstly the organizations involved in various public utilities are as follows: 1. For the public utility of water, the organizations involved are Central Water Commission and the various Municipal Corporations 2. For the public utility of energy, the organizations involved are the Public Sector Units like NTPC, Power Grid of India, and various private sector players 3. For the public utility of transport, the organizations involved are the Indian Railways, DTC, etc. 4. For the public utility of telecommunication, the organizations involved are BSNL, MTNL, Airtel, etc.

Secondly, talking about the organizations involved in the electrical utility are as follows: 1. Organizations for power generation This includes generation of renewable and non-renewable power Non-renewable power: Generation of thermal power is undertaken by organizations such as NTPC, Torrent Power, Essar, Reliance. The generation of nuclear power on the other hand is undertaken by organizations like the Nuclear Power Corporation of India and Bhavani Renewable power: Generation of hydro-electric power is undertaken by organizations such as NHPC, JHPL, KPCL. On the other hand, generation og wind power is taken care of by organizations such as Suzlon, CPL wind farms, Newman Power Co. , etc

2. Organizations for power distribution The organizations that are responsible for transmission and distribution of power can be enlisted as follows: Power Grid Corporation of India
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Torrent Power Limited Tata Power State Electricity Boards Damodar Valley Corporation Reliance Infrastructure

c) Focus of our study Why study Electric Utility :

Electric Utility is gaining importance in India over the years. Following are some of the key reasons why the focus of our study was binding on Electric Utility: a. Critical to the country : The electrical utility industry is a major provider of energy in most countries. It is indispensable to factories, commercial establishments, homes, and even most recreational facilities. Lack of electricity causes not only inconvenience, but also economic loss due to reduced industrial production. In a nutshell, access to affordable and reliable electricity is critical to a countrys growth and prosperity. b. Nature of Industry : The Indian Electric Power Industry is one of the largest and most important industries in India as it fulfils the energy requirements of various other industries. It is one of the most critical components of infrastructure that affects economic growth and the well-being of our nation. India has made significant progress towards the augmentation of its electric power infrastructure. The technologies and fuel sources India adopts, as it adds this electricity generation capacity, may make significant impact to global resource usage and environmental issues. c. Growth Potential : India has the worlds 5th largest electricity generation capacity and it is the 6th largest energy consumer accounting for 3.4% of global energy consumption. Due to the fast-paced growth of the Indian economy, the countrys energy demand has grown at an average of 3.6% p.a. over the past 30 years. It is poised to grow even more in the future due to the high demand of electricity in the country.

d) Organization studied Power Grid Corporation of India

II. PROCESS

a) Types of distribution channels adopted by them

1. Direct Distribution Systems In direct distribution system the marketer reaches the target consumer directly without the use of any intermediary. The distribution chain is small and no other party can take ownership of the product being distributed. The direct distribution system can be further sub-divided on the basis of the methods of communication that takes place during sale between marketer and consumer. These methods are: Direct Marketing Systems : In this system the consumer buys the product based on information gained from impersonal contact with the marketer like by visiting the marketer's website or ordering from the marketer's catalog. Or he buys based on information gathered through some personal communication with a customer service personnel who is not a salesperson and can be reached through a toll-free number. Direct Retail System : In this type of system the marketer operates his own retail stores. A perfect example of this system is Starbucks. Personal Selling Systems: In this system the distribution of the product is carried forward by people whose main responsibility is creating and managing sales (for instance a salesperson). He persuades the buyers into placing an order. This order may not be handled by the salesperson but through websites or toll-free telephone numbers. The sales person plays a vital role here in generating sales. Assisted Marketing System : In this form of distribution system the marketer handles the distribution of his product and helps it reach directly to the end user. However he needs assistance from others to spread awareness about his product among the customers. An example of assisted marketing system is e-bay, here the buyers and sellers are brought together for a fee. Agents and brokers can also be included in this category.

2) Indirect Distribution System In indirect distribution system the marketer includes intermediaries or other members in his distribution chain. These resellers make sure the product reaches the end user, while performing their duties they take complete ownership of the product. However the reseller may sell products on a consignment basis wherein the reseller pays for the product only when the product is sold. The resellers may be expected to take up a few responsibilities to help boost the sales of the product.

Indirect methods include the following:

Single-Party Selling System : In this system the marketer involves another party to sell and distribute his product to the end user. An example of singleparty selling can be when the product is sold through large store-based retail chains or through online retailers. In this case the distribution system is also referred to as trade selling system.

Multiple-Party Selling System : In multiple-party selling system the distributor involves two or more reseller in the distribution process before the product reaches the end user. This is most likely to happen when a wholesaler buys the product from the manufacturer and then sells it to the retailer.

b) Flows of energy in the distribution channel c) Problems faced by intermediaries involved in this distribution
Issues in the Electricity Distribution Sector in India The problems in Distribution sector have accumulated over the years mainly due to lack of investment, commercial orientation, excessive T&D losses, distorted tariff policies etc. Following are the key issues / key factors effecting overall performance of the distribution sector: 1. State Government related issues Uncertain commitment of State Governments is key impediment to the ongoing reform process. This includes delay in unbundling and restructuring of State Electricity Boards, minimal/no financial support to unbundled utilities during transition period, inadequate financial support for providing subsidised power to domestic and agricultural consumers, inadequate administrative support in curbing theft of power etc. Frequently changing policies of the State Governments in regard to subsidies/free power to farmers adversely affecting the revenue recovery and cost coverage of utilities. 2. Regulatory process related issues SERCs are inadequately staffed with poor infrastructure. Due to lack of competency and resources in Discoms, tariff filings are often delayed. In several cases, SERC asks Discoms to revise their filings on account of data gaps or improper information. 3. Commercial issues Commercial losses are primarily due to improper energy accounting and billing processes, faulty metering, under-billing, theft and pilferage of energy and lack of accountability within the organization. Commercial losses are estimated at about Rs.

26,000 crore during 2000-01 and theft of electricity is estimated to cost the country at about Rs. 20,000 crore per year. 4. Operational issues Due to inadequate metering and data collection system in place, utilities have not been able to conduct energy audit, which is crucial for any energy business. Discoms do not have proper load monitoring and control mechanisms (e.g. SCADA, Distribution Control Centre, telecommunications etc.), which results in to haphazard control of the demand and often leads to loss of revenue and inconvenience to the consumers. 5. Human resources and training issues In many of the state owned utilities, recruitment has been either stopped or restricted since last 15 years. Average age of employee in most SEBs is more than 50 years. Lack of fresh talent and domain expertise (e.g. in area of IT, communication, SCADA) impedes development of the sector and efficiency improvement. Induction of new technology in the field and office level also needs proper training for staff for efficient handling. Discoms need to undertake training need analysis and roll out training programmes for employees working in different areas. In a typical SEB, ratio of field staff to support/office staff is 54:46. However, customer facing staff is inadequate. Also, ratio of meter readers to consumers on the other hand ranges from 1:3000 to1:7000. 6. Technological issues Many of the distribution utilities in India are still lacking most basic requirements consumer database and asset database which can be addressed through IT and communication solutions. Utilities do not have complete record of all consumers, which results in to direct revenue loss. Most utilities maintain manual records of consumers (in the form of register) especially in rural areas. Electromechanical meters, manual reading of meters, manual bill preparation and delivery and inadequate bill collection facilities result in to overall delay in revenue collection and revenue leakage. Conventional complaint handling process results in delayed redressal and increased dissatisfaction among customers.Regular monitoring and testing of critical assets such as 11kV feeders, 11/0.4kV distribution transformers and 415V feeders etc. are very important in ensuring reliable supply III. OUTCOME

a) Drivers of success in distribution of electricity

Several drivers will shape the outlook of the Indian power distribution sector in the coming years. A few among these are: Continued demand for power: The Integrated Energy Policy predicts that in order to eradicate poverty, the country's economic growth needs to be at least 8 per cent annually until 2032 and in that time frame, the power capacity needs to rise to as high as
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around 800 GW. Distribution Reforms: Unbundling of the vertically integrated SEBs into functional entities is a key requirement of the EA 2003. While most of the States as depicted above have unbundled their utilities into Generation, Transmission and Distribution Companies, the real benefit of unbundling can be derived only through bringing in best practices and professional management through Privatization or PPP models. Given the political sensitivity and issues on valuation of assets on transfer together with employee reservations, States are looking at the Distribution Franchisee as a middle path for securing efficiencies while addressing the above political/social issues. However, in the long run, privatization seems to be a sustainable solution. The PPP model in Delhi has been successful in curbing AT&C losses from a level of greater than 55% to a level of around 20% in a span of 7 years. NDPL has invested more than Rs. 2000 Crs in the network over the past 7 years and an equivalent amount has been put up by other discoms. Supply codes and Performance Standards: Supply Code lays down standards and procedures for recovery of electricity charges, billing cycles, disconnections, and restoration of service and metering among other things. To protect consumer interests, the EA2003 requires the SERCs to specify standards of performance for distribution licensees. The commissions also have to specify the penalty and compensation to be paid by the licensees to the affected parties if the former fails to meet the standards. The licensees also have to furnish information regarding the level of performance achieved, the number of cases in which compensation was made along with the aggregate amount of compensation, to the SERCs. Both supply codes and standards of performance help in improving efficiency in power distribution operations and consumer service. All functional SERCs have notified the standards of performance regulations, and 21 SERCS have issued electricity supply code regulations as of December 2008. Sooner than later when open access in distribution becomes a reality, the importance of adhering to supply codes would become visible as the choice of supplier would depend on this. Growing consumer awareness: For both SEBs and private companies, consumer interest is becoming a high priority. Connections are far easier to come by, bill payments are being streamlined, and complaints are addressed more promptly and effectively. Utilities in Andhra Pradesh and Delhi have proved to be frontrunners in establishing high standards of customer service. For instance, North Delhi Power Limited (NDPL) has received accolades for providing better customer service through several measures including implementing a customized CRM package. Every customer at NDPL is segmented based on their sanctioned load, and NDPL has appointed dedicated client managers to cater to the specific needs and requirements of certain key consumer groups. This is in addition to the consumer relationship cell and consumer grievance redressal groups set up for addressing grievances of consumers. Further, call centers have been set up to address supply and billing complaints. It has put in place a short messaging service (SMS) based-fault management system whereby complaints are addressed through SMS. This has resulted in increased customer satisfaction across all segments, especially among urban domestic consumers, thereby improving the
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customers willingness to pay for better services. A virtuous cycle of better customer satisfaction resulting in more revenues for the discoms, who in turn are investing in better services, seems to be finally coming into play. Focus on IT: IT is increasingly playing a prominent role in making the transition. More and more discoms are adopting IT systems and practices to improve operations and customer service. Supervisory Control and Data Acquisition (SCADA) is being used for better management of distribution networks. Spot billing, call centers, remote meter reading, automated billing, and energy accounting are some of the IT mechanisms being incorporated. Advanced technologies are being deployed particularly in billing, fault reporting, remote metering and substation operations, enterprise solutions involving employees and commerce, consumer servicing through the Internet and telephones (call centres), and management information systems (MIS). Energy auditing and accounting are also being taken up assiduously. Move towards demand side management (DSM): Realizing the benefits of introducing DSM measures in reducing overall electricity demand, several state regulators are encouraging DSMs in their states. Many SERCs have introduced time-of-day with differential tariffs for usage in different times, particularly for high tension (HT) consumers. Discoms and regulators are also encouraging the use of energy efficient devices, including efficient pumpsets in agriculture, and efficient lighting and appliances. Farmers are being encouraged to use electricity in non-peak hours. They are also encouraging the use of energy efficient devices, including efficient pumpsets in agriculture, and efficient lighting and appliances. Environmental and social pressures: As a result of increasing environmental pressures, both local and global, the country's power mix is increasingly becoming green. The National Action Plan for Climate Change calls for about 5 per cent of the national generation to be based on renewable sources. Since power from renewable energy is infirm (though not unpredictable), these require a well interconnected grid with adequate spinning reserves and transfer capabilities. Further, as per policy objectives, discoms have to procure a certain percentage of their power requirement through renewable (The Jawaharlal Nehru National Solar Mission has envisaged an RPO mandate increasing from 0.25% to 3% of energy purchased by 2022). The government is also proposing to set up trading in renewable energy certificates which will help create a vibrant market for renewable energy and go a long way in converting the potential for renewable energy into a reality. Tariff rationalization: As per policy objectives, rationalisation of electricity tariffs and reduction of cross-subsidies will take place within a band of +/- 20 per cent by the end of year 2010-11. However, the consumers below the poverty line (BPL) and who consume a small quantity of electricity shall continue to receive special support through crosssubsidised tariffs. The tariff rationalisation will result in commercial viability of the discoms and hence lead to corresponding investments in related infrastructure. With tariff rationalisation, the HT consumer, who currently bears the burden of higher tariffs, will increasingly find it competitive to buy power from the grid rather than through captive generation. This will further help the discoms in improving their consumer mix,
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and hence their financials. Improving grid standards: Just about five years ago, Indian grids were both unsafe and unreliable with voltages and frequencies fluctuating way beyond stated or permissible parameters resulting in frequent grid disturbance and collapses, equipment damages and/or operations at much lower efficiencies. This in turn resulted in the inability to enforce merit order despatch, and operational and commercial disputes ruled. The regulatory mechanisms of the availability based tariff (ABT) and unscheduled interchange (UI) have created a solid base for maintaining grid standards. These should improve further with the newly notified draft for the amendment of the Indian Electricity Grid Code by the Central Electricity Regulatory Commission (CERC). Thus the utilities will have to focus on demand forecasting, and predict their long term requirement of power in order to benefit from the ABT regime. These drivers along with the government's focused interest in the distribution segment as illustrated through the institutionalisation of the Restructured-APDRP will shape the outlook for the sector in the coming years.

b) Innovations in distribution of electricity

A number of utilities have now started focusing on IT based applications to bring about efficiency in distribution. Moreover, the Restructured APDRP encourages IT enabled applications and automation for reduction of energy losses as well as energy accounting and auditing. Some of the automation and IT enablement in the Power Distribution Sector and their role in improving the commercial viability and service standards are: Customer indexing & GIS based Database: Consumer indexing based on GIS applications needs to be given priority in the Eleventh Plan to enable the respective utilities to increase their customer coverage, regularize unregistered/unauthorized connections, conduct audits at the feeder level by comparison of 'energy sent out' on a 11 kV feeder with total energy meter readings of all HT/LT customers in that particular feeder Energy Accounting and Auditing: A robust Energy Accounting and Auditing framework shall help the utilities in prioritization of loss reduction measures and bringing about aggressive reduction in loss levels. Reliability Monitoring of Power Distribution Systems: There are a number of reliability indices which measure the outage in terms of, consumer hours and number of consumer interruptions etc. Reliability monitoring will become more fruitful once Consumer Indexing is completed and will provide a direct index for customer satisfaction. Supervisory Control and Data Acquisition (SCADA): A well planned and implemented SCADA system not only helps utilities deliver power reliably and safely to
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their customers but it also helps to lower the costs and achieve higher customer satisfaction and retention.

Distribution and Grid Station Automation: Distribution automation (DA) optimizes a utilitys operations and directly improves the reliability of their distribution power system. Adding targeted distribution automation capabilities can be economical when they are an extension of your existing SCADA investments and the communication infrastructure. The success or failure of an automation program hinges on proper selection of equipment and communications to seamlessly integrate data into the utility control room. The key is to choose equipment that leverages your current assets wherever possible. With the latest in high speed communication technology, there has never been a better time for utilities to extend their automation beyond the substation. Substation automation is a rapidly increasing area of interest and benefit to utilities. Substation automation goes beyond traditional SCADA to provide added capability and information that can further improve operations and maintenance, increase system and staff efficiencies, and leverage and defer major capital investments. Outage Management Systems: An Outage Management System (OMS) provides the capability to efficiently identify and resolve outages and to generate and report valuable historical information. It also helps the utility inform the customer of the outage situation and restoration status (rather than the customer informing the utility first). An OMS typically works in conjunction with a GIS, the utilitys CIS, and automated call handling systems, such as an Interactive Voice Response (IVR) system. Distribution Network Planning: Inadequate network planning is one of the reasons for haphazard and scientific development of the distribution system. The utility should move to proper distribution network planning both for demand forecasting on a medium and long term basis, and for determining the need for system expansion and improvement to meet load growth. This will help in reducing the short term power purchase costs, particularly as short term prices have been high in the near future Utilities should prepare a perspective network plan for a 10 year period, and this should become part of the conditionalitys for sanction of grants under various programmes.
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 Automated Meter Reading/ Advanced Metering Infrastructure: Another area gaining prominence is the Automated Meter Reading of high revenue consumers which help the utilities protect their revenues and keep a continuous track of any anomalies at the consumer premises through a remote location. GPRS, GSM and CDMA are being used as the communication medium for these technologies. NDPL has undertaken Automated Meter Reading for more than 30000 consumers (highest in India so far) and this has ensured revenue protection to the tune of 60%. Advanced metering infrastructure (AMI) is defined as the communications hardware and software, and associated system and data management software that creates a network between advanced meters and utility business systems, and which allows collection and distribution of information to customers and other parties such as competitive retail providers, in addition to providing it to the utility itself. AMI is the wave of the future in distribution sector as more and more focus is laid on demand side management. Prepaid Metering: Pre-paid meters enable efficient use of power for agricultural use and also eliminate adverse impact on the water table due to excessive exploitation of ground water. Though it involves huge capital costs, the gains from the system can offset such costs in the long run. It is aim; expected that large scale use will bring down the cost of the technologies. Further, prepaid metering can act as an effective tool against defaulters and those found involved in dishonest abstraction of energy. Further, these meters find a prominent use in Govt. accommodations. HVDS Systems: The advantages of HVDS systems are well known, particularly in containing theft of electricity. Besides, it improves the quality of power significantly and thereby improves customer satisfaction. HVDS systems should be given a special focus to get immediate results in loss reduction. Efforts also need to be made to bring down the HT/LT ratio during the 11th Plan. The investment on conversions from conventional systems to HVDS is recovered by way of loss reduction within a period of 3 to 5 years in most cases.

Ch 5 : CONCLUSION Ch 6 : REFERENCES

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