Fueling Discom Cash Flow: How Struggling Discoms Can Consolidate Revenue
By Kanika Balani & Chanmeet Singh Syal
This summer has highlighted the need to improve the efficiency of our electrical networks. Due to heat waves, peak electricity demand rose to 211 GW, the highest on record. Several states experienced severe power outages as discoms were unable to consistently meet peak demand. Amid the crisis, the Department of Energy, through an amendment to the Electricity (Consumer Rights) Rules 2022, ordered discoms to ensure supply 24/7 days out of 7 in the cities. To meet the increased demand, discotheques could have bought expensive electricity on exchanges. However, their low cash flow proved to be a hindrance.
According to a report by Power Finance Corporation (PFC), state discoms owed Rs 2,38,496 crore to power generation companies in March 2020, while pending consumer payments amounted to Rs 2, 12,000 crores. Our public discoms lost Rs 0.35 on each unit supplied, totaling Rs 41,000 crore in 2019-20. Over the past few years, the Center has consistently tried to revive discom cash flow through programs such as the Financial Restructuring Plan and Ujjwal Discom Assurance Yojana, and came up with another program to pay discom dues in May. . Growing discom losses are mainly due to inaccurate energy accounting and billing and inefficient collection from consumers. In 2019-2020, nightclubs could not charge 15% of the energy injected into their network. Another 7% of revenue was lost due to poor consumer recovery. Here are five steps that could help jumpstart the financial health of nightclubs.
First, prioritize investments in capital infrastructure, technology upgrading, labeling and metering in high-loss areas. Additionally, asset mapping and consumer indexing should be prioritized to know how many consumers are being fed from which pole, distribution transformer (DT), and feeder line. This would improve energy compatibility. In addition, locating consumers on-site will help Discom staff provide prompt repair services and disconnect consumers with high delinquencies. Discoms in Delh – Tata Power and BSES – have dramatically improved billing efficiency by using GIS mapping and increasing consumer indexing.
Second, to ensure universal energy metering of all substations, feeders, DTs and consumers. According to the UDAY portal, approximately 37% of rural DTs and 5% of urban DTs still do not have a meter. In addition, most agricultural connections and more than 10% of rural households are unmetered. To measure the amount of energy lost during flight and during the transit of electricity, all nodes in the network must be measured.
Third, ensure that meter reading, bill generation and distribution are correct and regular for each consumer. According to the Residential Energy Survey of India (2020), about 10% of Indian households are billed irregularly or never received bills. Discoms could save operational costs through SMS billing by updating consumers’ mobile phone numbers in their databases. Additionally, consumers often complain about erroneous billing, which could be avoided with regular post-billing audits. Effective post-billing audits have partially contributed to the operational improvement of discoms such as BSES Delhi and JVVNL, Jaipur.
Fourth, improve the manpower capacity and overall infrastructure of discom subdivisional offices. In states like UP and Haryana, two engineers in a sub-division typically manage a consumer base of 50,000 and handle billing, collection, supply maintenance, grievance and disconnections on site. More field labor is key to improving customer satisfaction as well as billing and collections. One solution could be for discoms to separate the revenue operations framework from supply maintenance in local offices, such as in Rajasthan and Bihar. In addition, smart meters as part of the retail sector overhaul program would alleviate some of the workload. However, Discom personnel must be trained and qualified to manage the scanning grid with a specialized IT framework.
Fifth, find a permanent solution for consumer collection losses. According to PFC, an average consumer paid their discom bills in 160 days in March 2020. Ensuring reliable power supply, prompt grievance resolution, and access to easy payment methods could help improve payment discipline. Discoms in UP, Odisha and Maharashtra have made progress on this front by deploying women’s self-help groups and kirana shop owners as collection agents in rural areas, in addition to introduce online payment mechanisms. Finally, encourage government departments to explore prepaid provisioning and transfer electricity payments directly from departmental budgets. In FY20, unpaid electricity fees from ministries and state government grants amounted to Rs 97,000 crore. Unpaid subsidies worth Rs 6,365 crore further aggravated the situation for discoms. Therefore, state governments must transfer subsidies upstream.
The rules and regulations obliging discoms to provide reliable power to consumers already exist. Periodically, inefficient discoms could be penalized by regulators. In addition, regulators must also ensure that tariffs reflect the costs incurred by discoms. If boosting cash flow is not a priority, discoms would remain financially unviable.
(The authors are, respectively, Program Associate and Program Manager, CEEW)