How is UHBVN Discom Improving Financial Viability? CEEW

REPORT

Improving Discoms’ Financial Viability

Learnings from Uttar Haryana Bijli Vitran Nigam

31 October, 2023 | Power Markets

Bharat Sharma, Kanika Balani, Shalu Agrawal, Paras Bhattarai and Rashi Singh

Suggested Citation: Sharma, Bharat, Kanika Balani, Shalu Agrawal, Paras Bhattarai, and Rashi Singh. 2023. Improving Discoms’ Financial Viability: Learnings from Uttar Haryana Bijli Vitran Nigam. New Delhi: Council on Energy, Environment and Water.

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Overview

This report presents a detailed case study on the efforts of Uttar Haryana Bijli Vidyut Nigam (UHBVN) towards its financial turnaround and the remaining issues affecting discom’s operation efficiency. The study is the outcome of diverse data sources, including semi-structured interviews with key stakeholders, a primary survey of ~1,600 consumers in four high-loss circles, and a review of policies, regulations, and discom circulars in Haryana. Based on this assessment, the report also recommends measures for UHBVN, and discoms grappling with similar challenges, to reduce losses further.

India’s clean energy transition hinges on a fiscally sound power distribution sector. While the aggregate technical and commercial (AT&C) losses of state discoms have reduced to 22 per cent in Fiscal Year (FY) 2021, the performance varies, with some discoms still reporting losses above 30 per cent (PFC 2022a). However, there are discoms such as Uttar Haryana Bijli Vidyut Nigam (UHBVN), whose AT&C losses were reduced from 34 per cent in FY 2015 to 17 per cent FY 2021. UHBVN has also been consistently ranked among the top 10 state discoms since FY 2019 with an ‘A’ rating (PFC 2021b). In this context, UHBVN provides insightful learnings for discoms still struggling with high losses.

Key Highlights

UHBVN improved its billing efficiency from 69.4 per cent in FY 2015 to 82.8 per cent in FY 2021 and collection efficiency from 95 per cent to 100 per cent during the same period.
Improvement in billing and collection efficiency was an outcome of investment in distribution infrastructure, the creation of a commercial back office for timely consumer grievance redressal, and a targeted focus on rural domestic feeders to curb theft and reduce energy loss.
Mahra Gaon Jag Mag Gaon (MGJG) played a critical role in rural infrastructure upgradation, improvement in operational parameters of discoms, and enhancement in quality and reliability of supply.
Debt takeover under Ujjwal Discom Assurance Yojana (UDAY) and its conversion to equity supported the reduction in the Average Cost of Supply (ACS)-Average Revenue Realised (ARR) gap to zero by FY 2018. It also unlocked capital for investment in infrastructure upgradation.
Support from political executives and UHBVN higher management, along with Haryana Electricity Regulatory Commission’s active role in monitoring discoms, were instrumental in UHBVN's financial turnaround.
However, certain on-ground issues still persist, such as the presence of electromechanical and faulty meters; the mismatch in the workload of meter readers and their incentives affecting timely bill distribution; charging consumers a Minimum Monthly Charge (MMC); the continued prevalence of theft; and under-recovery of dues from domestic consumers, including from consumers with energy-intensive appliances like Air conditioner.
UHBVN should leverage smart meter deployments under the Revamped Distribution Sector Scheme (RDSS) to reduce metering and billing-related issues. Further, UHVBN can bolster targeted action against theft reduction and ensure revenue recovery from those using energy-intensive appliances. Replacement of minimum monthly charge (MMC) with a demand charge can improve consumer trust in bills.

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Bharat Sharma

Programme Associate

[email protected]

"There is a pressing need to make India's power distribution utilities smarter and digitally well-equipped. However, the prerequisite is a financially healthy power distribution sector. Our study suggests that systematic endeavour, as witnessed in the case of UHBVN, is imperative for improved operational efficiency and, consequently, the financial turnaround of the discoms."

Executive summary

India has made tremendous progress towards a clean energy transition, with 122 GW of installed renewable capacity and near-universal household electrification (Agrawal et al. 2020; PIB 2021). However, achieving India’s recent commitment of a generation fleet comprising 50 per cent non-fossil fuel capacity by 2030 and a net zero economy by 2070 would require a fiscally sound power distribution sector (PIB 2022b). Majority of Indian power distribution companies (discoms) have been reeling from huge losses, with overall aggregate commercial and technical (AT&C) losses being 22 per cent as of fiscal year (FY) 2021 (PFC 2022a). This is despite several financial restructuring schemes, such as Scheme for Financial Restructuring of State Distribution Companies (2012) and Ujjwal Discom Assurance Yojana (2015). High losses impact discoms’ capacity to invest in network and infrastructure upgradation and build the human resource capacity essential for integrating the increasing share of renewables in the energy market as well as improving the quality of supply to consumers.

Although discoms have been making several efforts to reduce losses, it will be helpful for them to learn from some discoms that have managed to achieve a financial turnaround. In this context, Uttar Haryana Bijli Vitran Nigam (UHBVN) offers an insightful case study for discoms to draw upon. The UHBVN has not only reduced its AT&C losses by half (34 per cent to 17 per cent) between FY 2015 and FY 2021, but it has also consistently ranked among the top 10 discoms since FY 2019, with an ‘A’ rating and a negative revenue gap (PFC 2021b).

This policy brief unpacks the factors that enabled UHBVN’s financial turnaround and also reflects on the sticky issues that need redressal to improve the discom’s operational efficiency further. The study draws on diverse data sources, including semi-structured interviews with key stakeholders, a primary survey of ~1,600 consumers in four high-loss making circles of the UHBVN, and a review of policies, regulations, and discom circulars in Haryana (Figure ES1).

Figure ES1 Multi-pronged data collection method for assessment

Source: Authors’ compilation

Key interventions driving UHBVN’s financial progress

An in-depth assessment of UHBVN’s journey through FY 2015–FY 2021, along with a review of tariff orders, discom circulars, and stakeholder discussions reveals that several combined systematic and targeted interventions contributed to the UHBVN’s improved finances and operational efficiency. These are discussed below.

Billing efficiency improved from 69.4% in FY 2015 to 82.8% in FY 2021

Upgrades to the distribution network, distribution asset mapping, consumer indexing, and near-universal metering of consumer connections enhanced the UHBVN’s ability to account for energy properly and plan energy loss reduction through targeted efforts.
Systematic efforts to create a unified billing database of rural and urban consumers, with adequate checks and balances during the billing process, helped improve the accuracy and timeliness of bill delivery to consumers.
Establishment of a commercial back office for timely monitoring and resolution of consumer complaints, with a focus on metering and billing issues, helped improve consumer satisfaction.
Periodic vigilance drives and replacement of bare conductors with armoured cables helped reduce incidences of electricity theft.
Targeted loss reduction in high-loss rural feeders under the state-funded Mhara Gaon Jagmag Gaon (MGJG) scheme through measures such as introduction of Aerial Bunched (AB) cabling, replacement of electro-mechanical/defective/burnt meters, shifting meters outside consumer premises, and regular energy audits.

Collection efficiency increased from 95% in FY 2015 to 100.8% in FY 2021

Introduced a 0.5 per cent incentive for digital payments and an additional INR 50 incentive on six consecutive digital payments.
Engaged with the community through platforms such as Bijli Panchayat to address consumer grievances and nudge consumers to pay bills.
At village level, power distribution infrastructure was strengthened under the MGJG scheme and villages witnessing improvement in collection efficiency (thereafter) received increased hours of electricity supply.

Average cost of supply and Average Revenue Realised (ACS-ARR) gap dropped from INR 1.1 per unit in FY 2016 to INR 0 in FY 2018

Debt takeover by the state government under the Ujwal DISCOM Assurance Yojana (UDAY), and its subsequent conversion to equity, helped lower the ACS-ARR gap and improve the UHBVN’s ability to expend on infrastructure upgrades.

In addition to the above-mentioned interventions, interviews with key informants reveal the major role of the leadership and support provided by political executives, UHBVN management, and state electricity regulators. For instance, measures such as performance-based incentives, transfer policies,and establishing robust communication channels between the field staff and headquarters have been instrumental in effecting operational reforms towards achieving loss reduction. The Haryana Electricity Regulatory Commission (HERC) has also been stringent in monitoring UHBVN performance and compliance with directives – for instance, the replacement of electromechanical or faulty meters.

The central government’s UDAY also unlocked discom capital for investment in infrastructure augmentation and improvement in service delivery. The overall impact of these efforts in improving the supply and service experience of consumers can be seen in the level of consumer satisfaction and complaint resolution: more than 70 per cent of the respondents in our survey, who had filed complaints in the past one year (FY2021) prior to the survey, were satisfied with the complaint resolution process. Also, 70 per cent of them had already had their complaints resolved.

How can UHBVN reduce its losses further?

Notwithstanding the significant improvements observed in UHBVN’s performance, any further loss reduction would require greater targeted efforts, especially focussed on rural domestic consumers. Our assessment of four high-loss circles in UHBVN through a consumer survey and stakeholder interviews indicates some persistent issues that require redressal. Here, we summarise key recommendations for the UHBVN. These would also be useful for discoms grappling with similar challenges.

Digitalise the distribution network through smart meters and leverage granular data for targeted loss reduction and revenue recovery. UHBVN has already installed 4 lakh smart meters and plans to install 32 lakh smart prepaid meters by FY 2025. As UHBVN transitions to advanced metering infrastructure, it must prioritise prepaid metering in high-loss areas while ensuring a consumer-centric deployment approach. The latter would entail making the smart meter mobile app user-friendly and increasing its uptake among users from different backgrounds. This will ensure timely and accurate billing, thus reducing consumer grievances and incentivising timely payments. UHBVN must also build capacity to leverage the smart meter infrastructure for targeted vigilance drives to reduce electricity theft, which has been a persistent challenge despite many efforts.
Undertake a concerted drive to replace faulty and electro-mechanical meters on priority: 95 per cent of the survey respondents mentioned that their meters were working fine and the rest perceived their meters to be running fast. As of September 2021, Haryana had 1.67 lakh electro-mechanical meters, despite repeated directives from the HERC to replace them. Recently, the UHBVN also reported that 2.6 per cent of meters were faulty – above the 2 per cent limit that the HERC has mandated. The majority of these faulty and old meters are in rural areas, which are yet to be covered by smart metering drives. Therefore, UHBVN should undertake a one-time drive to replace both electro-mechanical and faulty meters, particularly in rural areas, to ensure accurate billing and reduce losses.
Replace minimum monthly charges (MMC) with a proper demand charge: MMC are the minimum charges (per kW) that consumers have to pay if their total monthly electricity bill is lesser than the MMC. Around 35 per cent of rural respondents who did not trust their bills were being billed at MMC. HERC has termed MMC as “redundant and counter-productive” since it may encourage wasteful consumption (HERC 2022a). Therefore, it may also act as a deterrent to the adoption of energy efficiency measures, such as energy-efficient appliances, by consumers. Hence, UHBVN and HERC should replace MMC with a corresponding demand charge to improve consumer perception and trust.
Targeted introduction of door-to-door payment collection combined with a GoDigital campaign: One-third of the respondents who pay at UHBVN counters and common service centres (CSCs) complained of long queues and long travel time to facilities. Moreover, 70 per cent of respondents prefer doorstep bill collection. Introduction of door-to-door bill collection through self-help groups or rural revenue franchises – such as in Odisha and Bihar, respectively – in areas with poor bill collection and high losses will reduce opportunity costs for consumers dependent on offline payment modes and help in improving revenue Recovery.
This can be combined with a targeted GoDigital campaign designed specifically for areas with low penetration of online payments and low revenue recovery. The campaign can build on the existing momentum of digital bill payments. Considering the Revamped Distribution Sector Scheme (RDSS), UHBVN can potentially utilise such a campaign to increase consumer awareness of the benefits of shifting to prepaid smart meters and spread information regarding the utility of their smart meter mobile application.

Overall, our findings confirm that there are no silver bullets for improving the financial health of discoms. A suite of systematic interventions, concerted efforts for community engagement, and decisive leadership is what transformed UHBVN from a high-loss discom to a financially healthy one. While each discom will have a unique transition journey, by documenting lessons from UHBVN, we hope to offer salient insights for interested policymakers, discoms, and actors working towards the transformation of the power distribution sector in India.

FAQs

What is the total financial loss of state discoms in India?

According to the recently released “Report on Performance of Power Utilities – 2021-22”, the total accumulated losses of the state discoms was INR 5,74,220 crore at the end of FY2022.
Which state discoms have the highest losses?

As per the latest PFC report, losses of power utilities in Tamil Nadu, Uttar Pradesh, Rajasthan and Madhya Pradesh constitute around 61 per cent of the total accumulated losses of state discoms in FY2022.
Which discoms have significantly improved their financial health?

Aggregate Technical and Commercial (AT&C) losses is a key metric to ascertain the financial health and performance of the discom. Since FY2016, AT&C losses of state discoms have reduced from 24.84 per cent to 16.51 per cent in FY2022. During this period, discoms in Haryana, Maharashtra, Assam, West Bengal, and Rajasthan have improved their financial performance and brought their AT&C losses well below 20 per cent.
Why do discoms continue to face financial stress?

Discoms continue to face financial stress due to operational inefficiencies leading to low billing and collection efficiency. Billing efficiency is the proportion of energy that has been billed (both metered and unmetered sales) to consumers w.r.t. the energy supplied to an area. Collection efficiency is the proportion of the amount that has been collected from consumers w.r.t. amount billed. While discoms have been able to improve collection efficiency, billing efficiency remains a hard nut to crack. Low billing efficiency is an outcome of both technical and non-technical losses. The former results from gaps in the quality of power distribution infrastructure, whereas the latter is an outcome of improper energy accounting due to gaps in metering and billing.
How can Indian discoms' become financially healthy?

In 2020, the Ministry of Power launched the Revamped Distribution Sector Scheme to support discoms in loss reduction through the upgradation of distribution infrastructure and replace 250 million conventional meters with smart prepaid meters across states by FY2025. Smart prepaid metering would be helpful in curbing inefficiencies in billing, ensuring timely revenue recovery and enhancing consumer control over their consumption. However, as the recent CEEW study on smart meters suggests, extensive consumer engagement, building capabilities for data analysis and state-specific regulations on smart prepaid meters would be essential for leveraging smart prepaid meters for the improved financial health of discoms and enhanced consumer experience.