Council on Energy, Environment and Water Integrated | International | Independent
Suggested Citation: Balani, Kanika, Bharat Sharma, and Shalu Agrawal. 2020. Addressing Discoms’ Revenue Recovery Concerns During and After the Pandemic: A Case Study of MVVNL Discom in Uttar Pradesh. New Delhi: Council on Energy, Environment and Water.
This study discusses the systemic gaps in billing and collection operations of Madhyanchal Vidyut Vitran Nigam Ltd. (MVVNL), one of the power distribution companies (discoms) in Uttar Pradesh. It analyses how the COVID-19 lockdown aggravated these gaps. The study is based on findings from a telephonic survey of 300 randomly selected domestic consumers of MVVNL. Further, the study suggests measures to enhance billing and collection efficiency and discusses innovative revenue collection initiatives implemented by discoms in other states.
Key factors contributing to billing inefficiencies in MVVNL
Source: Authors’ analysis based on consumer survey and interaction with discom officials
Factors contributing to low receipt of bill payments
Source: Authors’ analysis based on consumer survey and interaction with discom officials
In November 2015, the Government of India launched the Ujwal Discom Assurance Yojana (UDAY) to improve the financial health of power distribution companies (discoms) in India. The scheme had set a target for the discoms to bring down their aggregate technical and commercial (AT&C) losses to 15 per cent by March 2019. However, more than half the discoms in India reported AT&C losses of over 20 per cent in FY 2018-19. Systemic gaps in billing and revenue collection operations have been contributing to discom losses for decades.
Discom finances took a further hit in the wake of the COVID-19 pandemic. During the nationwide lockdown (March–May 2020), most discoms suspended physical meter reading, bill delivery, and revenue collection through offline modes. They also lost revenues from higher tariff consumer categories due to a fall in demand. The Investment Information & Credit Rating Agency (ICRA) recently revised its estimation of the discoms’ revenue gap for FY 2021 to INR 42000-45,000 crore (USD 5.612- 6.012 billion) from INR 20,000 crore (USD 2.672 billion) estimated earlier. Against this backdrop, discoms need to address their financial sustainability concerns and can begin by fixing their systemic issues.
The Madhyanchal Vidyut Vitran Nigam Ltd. (MVVNL), a discom which covers 19 districts (out of 72 districts) in Uttar Pradesh, recorded 41 per cent AT&C losses in FY 2018-19. We studied their case to identify the systemic and recent challenges in billing and collection brought about by COVID-19 that contribute to discom losses. This study presents the findings from a telephonic survey of 300 domestic consumers – 172 rural and 124 urban –randomly selected from all the zones of MVVNL.
Our survey reveals that only half of the consumers received regular bills, and less than one-third had paid their last electricity bill. But during the lockdown, the billing and payment rates significantly declined to even lower levels. On the positive side, we noticed a significant increase in digital bill payments by urban consumers during the lockdown, highlighting the opportunity to expand digital payment options.
Along with measures to enhance billing and collection efficiency, we discuss some innovative initiatives implemented by discoms in other Indian states. These include rural revenue franchises in Bihar, women self-help groups in Odisha, and the e-wallet system in Maharashtra, where the discoms are engaging local youth and institutions for improving billing and collection efficiency. We also discuss the need to introduce tariff reforms in UP, especially for low consumption poor consumers as the tariffs in the state are relatively higher than most Indian states, raising affordability concerns. Besides MVVNL, the findings and recommendations of the study could be relevant for other discoms with high AT&C losses resulting from similar challenges.
Financial sustainability in the distribution segment is critical for the viability and growth of the power sector. In the past, several policies of the Government of India (GoI) have focused on ensuring the same through improved operational efficiency of the power distribution companies (discoms). In November 2015, the GoI launched the Ujwal Discom Assurance Yojana (UDAY) intending to improve the financial health of the discoms in India (Ministry of Power 2015). The scheme had set a target for the discoms to bring down their aggregate technical and commercial (AT&C) losses to 15 per cent by March 2019. However, the AT&C losses of all public discoms in India amounted to 22 per cent in FY 2018-19 (PFC 2020). These losses are attributable to inefficient billing and collection (ICRA and CARE Ratings 2019). Figure 1 shows the state-wise losses along with billing and collection efficiency values for FY 2018-19.
Uttar Pradesh (UP) has had some of the highest loss-making discoms, with the average AT&C losses of 33 per cent in FY 2018-19. The gaps in metering and billing in the state are more noticeable in rural areas. As of December 2019, 17 per cent of rural consumers in UP were unmetered, while 30 per cent of metered consumers did not receive bills based on their power consumption.1 Further, while 60 per cent of urban consumers paid their monthly bills on an average, only 11 per cent in rural areas paid theirs. As shown in Figure 1, such gaps in metering, billing, and collection have contributed to a below-par performance of discoms in UP with billing efficiency at 81 per cent and collection efficiency at 82 per cent vis-a-vis other states. While ~80 per cent of all Indian states have at least 90 per cent collection efficiency, UP does not factor among these.
The issues related to billing and collection were expected to exacerbate in the wake of the COVID-19 induced nationwide lockdown (March–May 2020), when most discoms suspended physical meter reading, bill delivery, and revenue collection through offline modes (Balani, Mani, and Agrawal 2020). They lost significant revenues from higher tariff consumer categories due to a fall in demand. Recently, the Investment Information & Credit Rating Agency (ICRA) also raised its estimation of the revenue gap for all discoms in India to INR 42000-45000 crore (USD 5.612- 6.012 billion) for FY 2021, up from earlier estimates of INR 20000 crore (USD 2.672 billion) (ICRA 2020). Despite the adverse implications of the pandemic-induced economic setback to discom finances, discoms must devise an aggressive yet consumer-centric strategy for improved revenue recovery during the pandemic and after.
This policy brief discusses systemic and recent challenges in billing and collection for the distribution sector in India. We advance this discussion through a case study of MVVNL, a public discom that caters to 19 districts (out of 72 districts) in UP and is the highest lossmaking discom in the state, recording losses of 41 per cent in FY 2019 (PFC 2020). The billing and collection efficiency of MVVNL stands at 78 per cent and 76 per cent levels, respectively. We use data from a telephonic survey of ~300 domestic consumers of MVVNL to highlight the pre and post-lockdown challenges and discuss potential strategies to address the billing and collection gaps in a sustained manner. The study answers the following research questions:
Figure 1 More than half of Indian states reported AT&C losses of above 20 per cent due to gaps in billing and collection operations
The MVVNL supplies electricity to 19 districts clustered into five distribution zones in UP (Figure 1) and has a consumer base of nearly 72 lakh (7.2 million) domestic consumers. This forms about 19 per cent of total domestic consumers in UP (UPERC 2019).
To capture the state of billing and revenue collection in MVVNL, we conducted a telephonic survey of nearly 300 domestic consumers – 172 rural and 124 urban – randomly selected from all the zones of MVVNL with the help of the discom’s consumer database (with appropriate permissions). To achieve a representative sample, we allocated the sample to each zone in proportion to the consumer population and the share of urban and rural consumer base2.
We used a 10-minute long structured survey questionnaire to interview any adult member of the sampled household aware of billing and payments. Our questionnaire covered the following key themes:
Figure 2 MVVNL zones covered in the CEEW survey
We trained the enumerators virtually on collecting the primary data with the help of ODK Collect– a mobile application for digital surveys.
We surveyed the consumers between 8-17 May 2020, when phase three of the nationwide lockdown was underway.
Besides, we also engaged with the discom officials to triangulate the responses from consumers and understand the factors determining the gaps in billing and payments.
In this section, we discuss the key findings from the survey of ~300 consumers in the MVVNL distribution region.
Regular billing is imperative to ensure timely payments by consumers. In UP, domestic consumers are billed mostly through spotbilling, which involves on the spot bill generation using a hand-held device by the meter reader. If not given a spot-bill, a consumer is provisionally billed on their past consumption and can either collect the bill from the discom’s local office or is sent an SMS by the discom. Other than this, the consumers can also self-generate the bills based on their meter’s reading.
As per our survey, only 56 per cent of the consumers reportedly receive bills regularly through any mode (Figure 3). Irregular billing appeared to be more prevalent in rural areas, where only one-third of consumers receive bills regularly, compared to urban areas. Notably, 34 per cent of the rural consumers have never received bills since electrification. However, as per UPPCL, nearly all the rural and urban consumers under MVVNL were billed every month in 20193. The difference between our survey findings and the billing status from UPPCL’s database can be partly attributed to the prevalence of provisional billing. Nearly 15 per cent of rural and 7 per cent of urban consumers were billed on a provisional basis in MVVNL, in December 20193.
Figure 3 Even before the lockdown, only half of the consumers were being billed regularly
During the lockdown, MVVNL suspended physical meter reading and bill delivery in most locations until the first week of May 2020. Consequently, the gaps in billing further widened, with only 35 per cent of consumers receiving bills in April 2020 (Figure 4). While half of the consumers received bills in urban areas, only 24 per cent of consumers received bills in rural locations. A majority of urban consumers who received bills got an SMS from the discom regarding their billing information.
Figure 4 One-third of consumers received bills during the lockdown
Our survey exercise and discussions with the discom staff provide useful insights into the reasons behind billing gaps. The absence of updated consumer phone numbers in the billing database emerged as the primary reason for low receipt of bills during and before the lockdown. Due to this, bills generated on a provisional basis and sent via SMS are often not delivered to the consumers. Of all consumers registered with the discom, the phone numbers of nearly 50 per cent consumers are not available. Further, while conducting the survey, of the 800 phone numbers randomly selected, we found that only 48 per cent were valid and correctly matched with the consumer’s name. In effect, the database has updated contact details of just onefourth of all consumers. These gaps are higher in the case of the rural database, which explains the low receipt of bills via SMS during the lockdown.
Our interaction with the on-ground discom staff and meter readers suggest that the gaps in billing can also be attributed to the inadequate allocation of meter readers across the geography, low incentives offered to them and gaps in performance monitoring. Typically, a meter reader earns INR 4 on every bill generated, which includes their travel expense. We also find that there is understaffing in the discom at the ground level. Typically, two employees (including a sub-division officer and a junior engineer) manage several operations ranging from supply interruptions, billing disputes, disconnections, consumer grievance redressal, and organising camps in villages to collect payments. Further, the human resource crunch has substantially increased with the addition of new consumers under the Saubhagya scheme. As shown in Table 1, the employee expenses of MVVNL has reduced by 12 per cent, despite an increase in the consumer base by 37 per cent (UPPCL 2020, UPERC 2019).
Table 1 The employee expenses in MVVNL has reduced, despite an increase in the consumer base
Further, the discom has been consistently underspending on employee expense component, vis-a-vis the expenses approved by the regulator (Table 2). The understaffing in the discom limits its ability to monitor the performance of the meter readers properly and conduct timely checks.
Table 2 MVVNL spends less than one-third of the approved expenses on its employees
We have summarised the reasons contributing to the billing inefficiencies in MVVNL in Figure 5.
Figure 5 Key factors contributing to billing inefficiencies in MVVNL
Receiving timely payments from consumers is essential for discoms to recover costs and meet its working capital requirements. Figure 6 shows that 23 per cent of consumers (mostly rural) have never made any payments since they received power connection; 90 per cent of them have never received bills. In effect, less than one-third of consumers reported paying their last received bill.
Figure 6 Less than one-third of consumers have paid their last received bill
Irregular billing is a significant factor resulting in irregular payments. Since most consumers do not receive bills regularly (as shown in Figure 3), it is often challenging for them to pay the accumulated bills when received.
We found that the share of consumers who made payments further declined during the lockdown period (Figure 7). Less than 10 per cent of all consumers paid their bills for April 2020 (during the lockdown), and most of them were urban consumers
Figure 7 Less than 10 per cent of consumers made payments during the lockdown
Reasons for non-payment
When asked about the reasons for non-payment of electricity bills, 46 per cent of consumers cited inadequate or irregular income as the primary reason, followed by the inability to visit the counter for payments due to long distances (23 per cent). A few rural consumers claimed that they were waiting for the one-time settlement (OTS) camps to be organised in their villages. The OTS scheme is announced every year between December and March, wherein consumers can pay their pending bills and have their late payment fee waived off. For about 22 lakh consumers in UP who made payments under OTS in 2019, the discoms waived off the late payment surcharge worth INR ~1700 crores (UPPCL 2020). This reflects that the discom never recovers a massive sum of interest costs on working capital, waived off during OTS camps.
Lack of trust on the bills generated by the meter readers and low deterrence due to irregular disconnection drives also emerged as other reasons for non-payment. In addition, some respondents also mentioned the extension of the date for bill payment as the reason for their non-payment during the lockdown. A few consumers erroneously believed that the discom had waived off their bills for the lockdown months. Figure 8 summarises the key reasons for low collection efficiency in MVVNL.
This highlights the need to i) revisit the tariff schedules to define the lifeline tariff and subsidy required in line with consumers’ ability to pay, and ii) make convenient payment options available to consumers. We discuss these in detail in the next chapter.
Figure 8 Factors contributing to low receipt of bill payments
Bill payment modes
While both the billing and payment rates went down during the lockdown, we also observe a silver lining. Around 90 per cent of urban consumers paid their bills through online modes during the lockdown (Figure 9). This share was less than 20 per cent before the lockdown, when consumers relied on offline payment modes, including collection counters and common service centres. This finding is in line with UPPCL data, which shows that 24 per cent of urban consumers and 14 per cent of rural consumers of MVVNL paid their bills through digital modes in 20194. The increase in digital payments offers an opportunity to promote digital mediums for timely bill payments, particularly in urban areas.
Figure 9 Ninety per cent of urban consumers made payments via online modes during the lockdown
The MVVNL discom needs to adopt and implement measures that can help bridge the existing gaps in billing and revenue collection. To identify relevant solutions and strategies, we studied the good practices and innovative initiatives introduced by discoms and state governments across the country. These practices, discussed here, could also benefit other discoms that have high AT&C losses resulting from similar challenges.
Billing and collection inefficiencies are exceptionally high in rural areas and require context-specific solutions. We have identified three innovative approaches implemented by discoms in other states to improve revenue recovery in rural areas, that could be adopted by MVVNL.
In 2013, Feedback Energy Distribution Company (FEDCO), a distribution franchisee under the Central Electricity Supply Utility, in Odisha experimented with women selfhelp groups (WSHGs) in Nayagarh district. It engaged 142 WSHGs responsible for meter reading, bill generation, and collection, filing consumer complaints, and reporting electricity theft based on information from community members. An SHG management committee, consisting of educated and sociallyactive individuals from local areas, tracks the performance of the WSHGs and serves as the link between the FEDCO and the WSHGs (Swami and Wagle 2019).
Resultantly, the AT&C losses in Nayagarh district reduced from 59 per cent in FY 2013 to 39 per cent in FY 2018. This was the highest achieved loss reduction across areas under FEDCO. During this period, billing efficiency improved from 58 to 78 per cent and collection efficiency from 84 to 102 per cent (Swami and Wagle 2019). A vital feature of this intervention is a performance-based incentive structure, displayed in Table 3.
Discoms in Bihar launched an RRF scheme in 2013, employing the local youth for meter reading, bill distribution, and revenue collection from consumers in rural areas. In 2018, the discoms introduced spot billing and collection through mobile applications (NBPDCL 2018). This contributed to increasing collection efficiency, following which, discoms’ AT&C losses declined from 44 per cent in 2014-15 to 31per cent in 2018-19 (PFC 20). We discuss the key features of this scheme below5.
Billing process
Collection process
Table 3 Performance-based incentives for payment and collection for WSHGs
Incentive structure
Monitoring and transparency
The Maharashtra State Electricity Distribution Company Limited (MSEDCL) discom in the state of Maharashtra launched MahaPowerPay, an online wallet payment system to improve collection efficiency in rural areas, where counter density is low. Under this system, MSEDCL designates select retailers (grocery, medical stores, etc.) as collection agents, with whom consumers can deposit payments in cash. To collect payments, MahaPowerPay owners have to first recharge their wallet, which serves as the security deposit. The first minimum recharge is INR 5,000, and subsequent ones can be in multiples of INR 1,000. After the payment, the wallet sends an SMS to the consumer and generates a receipt with MSEDCL logo. The collection agents receive a commission of INR 5 (USD 0.07) per bill, which is credited to the wallet after the online submission of the invoice6.
The key strengths of these three approaches include i) reliance on the local youth, community members or institutions, ii) performance-based incentives, and iii) use of technology for ensuring timely billing and revenue collection. UP has also recently initiated a payment collection exercise through the SHG model in select districts in collaboration with the National Rural Livelihoods Mission (Mishra 2020). The model is being implemented in a phased manner and is yet to gain pace. It would be useful for the UP discoms to take lessons from the experience of Odisha and other states for a successful implementation of the community-led model.
Besides adopting area-specific solutions, there is also a need for relevant institutional reforms to ensure periodic meter-based billing of all consumers, as discussed next.
To encourage timely payment of bills, MVVNL discom must make diverse payment modes available to the consumers and simultaneously incentivise payment discipline through rebates. We have already discussed a few innovative models of payment collection in section 4.1. Further, a significant increase in digital payments among urban consumers during the lockdown indicates an opportunity to promote such payment modes. Below, we discuss incentives and measures to encourage timely payments from consumers.
Even though the low consumption households (lifeline and rural domestic) receive electricity on subsidised rates, many rural consumers in our survey cited their inability to pay bills due to inadequate or irregular incomes. Thus, it is pertinent to investigate whether the tariff structures in the state align with the consumption trends.
As per our survey, nearly half of the households (that paid their last bill) incur a monthly expenditure of less than INR 565 on electricity use, with a majority of these being rural households. The median monthly expenditure from this survey is comparable to the estimates (INR 550 per month) from a state-wide consumer survey conducted in 2018 (Ganesan, Bharadwaj and Balani 2019). As per the current tariff schedule in UP (Table 1), these expenditure levels imply that roughly half of the households in UP fall within the first slab of the tariff schedule (0-100 units per month).7 Thus, roughly half of the domestic consumers in UP receive similar subsidy support at equal rates, even though it is the poorer households that may need higher support.
Further, the tariff structure discriminates between the low-consumption poor consumers categorised under the lifeline, rural and urban domestic categories. For instance, three consumers under each of the categories consuming 50 units would be charged INR 210 (lifeline), INR 270 (rural domestic), and INR 404 (urban domestic), respectively. The tariffs for urban consumers are nearly 50 per cent higher than their rural counterparts belonging to the same socio-economic class. Most states in India have standard tariffs for low consumption consumers and do not discriminate between urban and rural consumers.
There is a need to enhance the subsidy support to low consumption consumers via tariff reforms. States, such as Bihar, Gujarat, Rajasthan, Madhya Pradesh, Maharashtra, Karnataka and Haryana, define the lifeline category for consumers using 30-50 units a month.8 Further, the median energy charge for the lifeline consumer category charged by discoms across most states is less than INR 2 per kWh, and the fixed charges are less than INR 20 per kW per connection. In comparison, the lifeline tariffs in UP are relatively high, as shown in Table 4.
UP’s electricity regulatory commission must consider devising a higher lifeline tariff support for all consumers with less than 50 units per month and increase the tariffs above this limit for a revenue neutral adjustment. Lower tariffs would improve the affordability of electricity for poorer consumers and reduce the revenue loss for discoms on non-payments by consumers. The above should be prioritised over OTS announcements that result in high-interest cost burden for the discom.
Table 4 Tariff slabs for rural and urban consumers in UP (FY 2019-20)
The COVID-19 pandemic has triggered new and unexpected challenges for discoms. Our survey with MVVNL consumers demonstrates how systemic weaknesses in billing and collection accentuated during the current crisis. While more than half of the consumers responded that they received bills regularly before the lockdown, only one-third of them received bills during the lockdown. Similarly, only a third of the consumers made payments against their last received bill. There is also a significant urban-rural divide in discoms’ performance, vis-a-vis these metrics, which requires urgent redressal. Further, 90 per cent of the urban paying consumers paid through digital channels during the lockdown. This presents an excellent opportunity to scale up digital payments in urban areas.
Given the number, diversity, and geographical spread of consumers served by public discoms in India, including MVVNL, a one-size-fits all approach would not work. Discoms need to adopt a combination of robust institutional mechanisms, incentives, and context-specific solutions to bridge their billing and revenue gaps. These include better monitoring, staff enhancement, robust data management systems, financial incentives to consumers, and engaging local communities in billing and collection processes. Figure 10 summarises the critical interventions discussed in this study that MVVNL and other discoms could employ
Figure 10 Key interventions to enhance billing and collection efficiency
