3 areas distribution companies in India must focus on

Since the beginning of the power sector reform in India, several initiatives have been taken for commercial performance improvements of distribution companies; however, the desired results have not been achieved even after significant investment in the sector during last ten years.

Situation is unlikely to go for a rapid change until there is a strong regulatory enforcement, effective project management and accountability at all levels. Our recent experience with government utilities portray that key challenges in the sector during pre-reform was lack of investments and smart technological solutions, which has been shifted over time to the lack of commercial process acumen, project management skills, inefficient asset and technology utilization and ineffective monitoring tools during post reform era.

Total investment during the past ten years in the sector has increased in many folds b0th by Central and State governments. Whereas, the gap between average power supply cost and average realization has increased and aggregate revenue of loss of Rs.29,333 Crs in 2000-01 has increased to Rs.61,998 Crs in 2010-11 as per MoP and PFC reports .

During a recent study, it is observed that modern distribution business needs primary focus on three key areas:

1. Effective reduction of AT&C loss through efficient investment planning and project management:
Under different central and state government schemes, there are several system improvement projects including substation upgradation, network strengthening and intellectual metering with remote communications.

However, the benefits are not fully realized even many years after the project implementation. Our research shows that inappropriate project estimates, incorrect consumer indexing, erratic base loss level, non-systematic project implementation and lack of enforcement of regulations and vigilance are the primary reasons for non-delivery of the desired results.

2. Standardization of commercial performance improvement, strict governance and accountability
During few pilot AT&C loss reduction exercises across utilities, it is observed that employees are not confident about the priority between the regular activities and project management and monitoring activities.

This results in dependency on the contractor capabilities and in many cases due to bad workmanship and non-adherence to quality control, the end benefits are not realized, e.g. inaccurate indexing, improper metering installation and sealing, inaccurate meter reading and billing. The other issue arises on the lack of implementation of internal and external governance system to establish the accountability.

3. Capacity building to cope up with the changing business scenario:
During a research and pilot loss reduction programme in utilities, it is observed that in the corporate and field level there is a distinct skill gaps which has arisen due to lack of knowledge upgradation of experienced staff or absence of skill transfer to the newly employed staffs.

This has resulted in slow adoption of benefits from new technology and IT initiatives. Lack of comprehensive training both on managerial and technical is another hindrance to achieve the desired performance level for a profitable discom.
 

Please see the diagram (The process integration cycle) which summarizes the key efforts for comprehensive performance improvement for discoms.

Commercial Process Improvement: In many government utilities there are established commercial procedures, however, those are fragmented and rarely practiced. Therefore, there is a need for comprehensive step by step approach for commercial process for whole revenue cycle from meter reading to credit control.

Commercial policy and guidelines should also comply latest regulatory requirements and need to address the job responsibility along with reporting relationships.

Appropriate governance should also be introduced to check and to ensure implementation of the procedures up to lowest business unit level.

Other important aspect of the successful implementation of the commercial procedure lies in the understanding of the customer requirements and effective delivery of the customer services.

Therefore, the utilities should focus on the development of the long term customer strategy based on type of customers, new technology and future IT solutions. Well planned customer services will work as a catalyst for commercials loss reduction amalgamated with customer satisfactions.

Commercial procedure for loss reduction and customer service strategy must be tested in select pilot locations for fine tuning before companywide rollout.

IT Support & Vigilance: IT solutions in complete revenue cycle and intelligent technical system for consumer vigilance are integral parts of the distribution business.

Most of the government utilities have already been initiated IT solution in billing, procurement and finance however, a complete solution through ERP is in a nascent stage.

In many cases, integrated solutions are designed without conducting a through BPR (business process reengineering) results in partial benefit or no benefits of such vast IT solutions.

Stress should be given on the BRP for an efficient tech-commercial process solution otherwise, the new system will complicate the day to day use of the IT benefits and the system will be partly utilized leaving the whole purpose of integrated solution at bay.

IT strategy and roadmap also needs to addressed the requirements of high value consumer (say >20 HP) and low value LT consumers (domestic, commercial and agricultural etc.) separately as different types of consumers are equipped with different types of metering and communication technology. High value consumers needs special attentions as these small group of consumers (<1%) fetching almost 50% of total revenue throughout the year.

Capacity Building: During a recent study it is observed that most of the discom employees are still busy in day to day maintenance work or routine commercial work as was the scenario before the sector reform. Both existing employees and new recruits are in a need of proper guidance and knowledge update considering the changing managerial and technological scenarios.

In each employee level, job responsibilities to be clearly defined and objective of the work should be explicitly narrated. Based on the understanding of the skill gaps through interaction at managerial and staff level, a comprehensive capacity building plan needs to be designed.

Capacity building initiative should be class room as well as on-job training including commercial, technical and IT initiatives. A core team should be identified and trained in the pilot locations selected for commercial process improvement and reduction of AT&C losses.

Train-the-trainer mode may be utilized to spread the initiatives at company level.

Companywide roll out plan: Once the commercial procedure is developed and tested in pilot locations, customer strategy is in place, employee skills gaps are identified and a small group is trained, the utility is ready to take all initiatives at a whole utility level.

The precondition for the roll out is the change management initiatives. The utility at the senior management level should introduce change management communications along with the incentives for the success of the commercial performance improvement with a definite timeframe.

A clear governance and management information system should be in place to monitor the progress and identification of key issues. The top management is expected to conduct time to time employee appraisal and needs to ensure implantation of incentive and disincentive as per policy. Long awaited investment is in place and it’s time to monitor and realize benefits through effective employee management and customer satisfactions.