The document summarizes issues discussed at the 14th Regulators & Policymakers Retreat in Goa, India from August 1-4, 2013. It outlines several financial challenges facing Indian power distribution companies (discoms) including a growing gap between costs of supply and approved retail tariffs. It also discusses a financial restructuring plan, inadequate regulatory recognition of expenses, underinvestment in distribution infrastructure, a skewed load curve, and challenges with open access consumers switching between distribution and open market sources on a daily basis. The document aims to promote discussion on improving the financial sustainability of discoms and distribution sector planning in India.

1. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
Issues in Distribution and Open Access
Ajit M. Sharan

2. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
1. Financial Sustainability
ACS-ARR Gap- As of FY12, the ACS-ARR gap has
reached to 2.13 Rs./unit.
The increase in ACS-ARR gap could be attributed
to the following :
• No tariff increase for nine years from 2001-02
to October 2010. Regular tariff increase since
last 3 years.
• Inadequate RE subsidy due to
underestimation of Agricultural sales by the
regulator.
• Delay in approval of Fuel Surcharge
Adjustment (FSA) coupled with long gestation
period of 2-3 years for recovery of FSA

3. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
Financial Sustainability
• Procurement of expensive power through short term purchases and
unscheduled interchange route particularly in FY2009-10 financed through
short term borrowings - Election time phenomenon.
• Significant increase in employee cost attributable to 6th Pay Commission.
• The deficit in the Revenue Requirement converted to Regulatory Assets.
The RA/approved gap reached Rs. 2500 cores on 31.03.2013.
• High level of receivables in books of accounts amounting to over Rs. 4500
Crs as on 31 Mar 2013.
• Operational inefficiencies – High AT&C Losses

4. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
2. Financial Restructuring Plan
• Genesis lies in the factors listed out earlier.
• 50% of the short-term outstanding liabilities as on 31st March 2012 (Rs. 7381
Cr. i.e. 50% of Rs. 14762 crores) would be taken over by the State
Government, to be first converted into bonds and issued by the respective
Discoms to the lenders and then taken over by the State.
• Balance 50% of the loans are to be restructured in to long term loans by
banks (Rs. 7381 Cr).
• As per financial projections of FRP, ACS-ARR gap is projected to be eliminated
by FY 2016-17 by AT&C loss reduction and necessary tariff adjustments.
• However the cash turnaround shall occur after further 2 years i.e. by 2018-19
owing to repayment burden of restructured loans.
• The banks will fund operational losses for initial three years beginning FY
2012 – 2013 on a diminishing scale of 100%, 75% & 50%.
• The GOI will provide incentive for accelerated loss reduction.

5. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
3. Regulatory Intransigence
• Non -recognition of Legitimate Expenses by Regulator
• Interest on working capital is allowed on normative basis and not at
actuals. On an average only 15% of the proposed interest on working
capital was allowed by the Commission during FY 2011-12 to FY 2013-14.
• Return On Equity : HERC has not been allowing any return on equity to the
discoms.

6. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
4. Inadequate Investments in Infrastructure
• As per the CEA, the capital Investment in the power sector should be in
the ratio 2:1:2 for Generation, Transmission and Distribution respectively.
• Major investments have been made in Generation and Transmission
segments in the past where typical project size is large with more
visibility.
• There has been inadequate investment in Distribution sector over the last
few years owing to limited capability of the discoms to raise finances in
view of poor financial health.
• Investments in Distribution segment have not yielded envisaged benefits,
for example Agriculture HVDS scheme in Uttar Haryana Bijli Vitran Nigam
with an approximate investment of Rs. 1168 Cr over two years has not
resulted in envisaged efficiency gains.
• Metering : Various technology options have been tried over the years.
Still no perfect solution.

7. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
5. Load Profiling- Haryana Discoms
Consumer
Category
% Share in
Connected
Load
% Share in
feeder level
energy input
Approxima
ted AT&C
Losses
Key Initiatives to reduce AT&C
losses
Rural Domestic
30%
17.9% 60-70% Feeder pillar box and Village
Supply Improvement Scheme
Urban Domestic
30.6%
30-40% R-APDRP Part B investments
Commercial 9% 20-30%
Industrial 28% 16.3% 10-15% AMR/AMI
Agriculture 28% 31.2% 12-15% Feeder Segregation and Ag
HVDS
Others (PWW/BS
etc)
5% 4.0% 20-30%

8. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
6. Skewed Load Curve
• There have been huge variations in intra-day as well as seasonal demand. Figure below
shows load curve of Haryana dated 4th July (Peak Load Day- 7881 MW).
• During the peak load day off peak load was 6208 MW (78% of peak Load)
5000
5500
6000
6500
7000
7500
8000
8500
0:15
1:45
3:15
4:45
6:15
7:45
9:15
10:45
12:15
13:45
15:15
16:45
18:15
19:45
21:15
22:45
Drawal of Haryana Discoms(MW) on
4th July 2013- Peak Load Day
• Flattening of load curve is important to manage long term and short term power purchase
portfolio
• Discoms have initiated scheme for shifting of Agriculture usage to off peak hours (Pilot Project in
Bhiwani & Mahendergarh district) – Concession for consumption during the night hours.
5672
6441
7645 7622
7213
6389
5753
5228 5442
5902
6228
5920
0
1000
2000
3000
4000
5000
6000
7000
8000
9000 Monthly Peak MW Drawl- Seasonal Variations

9. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
7. Open Access- Issues
• Total open access load for Haryana is 510 MW out of which approximately 250MW
load is scheduled on daily basis by open access consumers.
• Most of the Open Access Consumers resort to price arbitrage on daily basis on the
pretext of long term Open Access which imposes difficulty in system planning and
power purchase . The power that is contracted keeping in view the peak demand is
rendered surplus in off peak hours leading to losses.
• The national tariff policy states that
“For achieving the objective that the tariff progressively reflects the cost of supply of electricity, the SERC would notify roadmap within
six months with a target that latest by the end of year 2010-2011 tariffs are within ± 20 % of the average cost of supply. The road map
would also have intermediate milestones, based on the approach of a gradual reduction in cross subsidy.
Further NTP also states that “The cross-subsidy surcharge should be brought down progressively and, as far as possible, at a linear rate
to a maximum of 20% of its opening level by the year 2010-11..
• The tariff for subsidised categories is not increasing in proportion with that of
subsidizing categories and as a result the amount of cross subsidy is increasing
whereas the regulator has been reducing the Cross Subsidy Surcharge by 20% each
year (40% up to FY 2013 – 14).

10. The 14th Regulators & Policymakers Retreat
1st – 4th August, 2013, Goa Marriott Resort & Spa, Goa
Thank You