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SUMMER INTERNSHIP On Distribution Cost Reduction Strategy and Methods ( Evaluating comparing and recommending various strategies and methods adopted by Discoms in the private sector to ensure cost and loss reduction)

Akshit Aggarwal (2019PGP068) MBA Class of 2019-21 Indian Institute of Management, Shillong

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Declaration

Distribution Loss Reduction Strategy and Methods

(a) That the work presented for assessment in this summer internship Report is my own, it has not previously been presented for another assessment and my debts (for words, data, arguments and ideas) have been appropriately acknowledged. (b) That the work conforms to the guidelines for presentation and style set out in the relevant documentation.

Date: …………… AKSHIT AGGARWAL MBA- IIM SHILLONG

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Certificate

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Acknowledgement

This project bears the imprint of many people who have assisted me in the successful completion of this report. I wish to express my sincere gratitude Finance and Accounting Department at TATA POWER -DDL and acknowledge the contribution of all the people who took active part and provided valuable support to me during the course of this project With due reverence, I acknowledge the valuable support of “Mr. Hari Om Singh, Mentor”, for giving me the opportunity to add to my knowledge reservoir. Lastly, I would like to thanks to the ALMIGHTY and my parents for their moral and financial support and my colleagues with whom I shared my day-to-day experiences and received lots of suggestions that improved my work quality.

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Contents Declaration............................................................................................................................................2 Certificate..............................................................................................................................................3 Acknowledgement.................................................................................................................................4 Project Summary...................................................................................................................................6 Research Methodology..........................................................................................................................8 Context and Introduction.......................................................................................................................9 Company Overview..............................................................................................................................10 Geographical Area of Operation (TPDDL)............................................................................................14 Shareholding Pattern...........................................................................................................................15 Business Profile....................................................................................................................................16 The objective of the study...................................................................................................................20 Background & Current Scenario..........................................................................................................21 Power Scenario in Delhi in 2002..........................................................................................................23 Competitive Scenario...........................................................................................................................24 Distribution Reforms Planned by the Government..............................................................................26 Distribution Loss Components.............................................................................................................27 Reasons for High AT&C Losses in India................................................................................................30 Focused approach to reduce AT&C Losses (TPDDL).............................................................................32 Brief profile of Companies in in Private Sector....................................................................................35 Comparison of Companies in the Private Sector.................................................................................37 AT&C Losses scenario in Delhi.............................................................................................................38 .............................................................................................................................................................38 Solutions and Recommendations to reduce Commercial Losses.........................................................41 References...........................................................................................................................................50

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Project Summary

a better way. The second part of the report entails the study about the current situation of the AT&C and other distribution losses in the power sector. It record the initiatives taken in Delhi and by private companies to reduce their AT&C losses exponentially over the years. The report further focuses on the reforms made by the government in order to boost the distribution sector. Also the report compares the strategies adopted by the private players to reduce their distribution losses and recommend what strategies TATA POWER TPDDL can adopt to further reduce its distribution losses.

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Research Methodology

1. Research objective To create and develop new ideas and strategies to reduce distribution losses by TATA POWER DDL

2 Research design Methodology used in research is both qualitative and quantitative. The data used is primary as well as secondary. MS Excel and SPSS is used for the evaluation of data

A. Primary data collection: Data was collected through the existing dataase of consumers provided by TATA Power B. Secondary data collection  TATA POWER DDL portal  Research articles  Websites

3. The data was analysed using SPSS software. The data which was already present on the net , various articles and journals were given a read. Various practices taken up by countries were studied and then data analysis was done to look into the various strategies adopted to reduce the distribution losses

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Context and Introduction The Covid-19 pandemic has taken a huge toll on India and countries across the globe in terms of humanitarian impact as well as on the economy. India also feeling the effect with a dynamic shift in the production and the demand pattern The Power sector continue to ensure uninterrupted power supply in the country in these unprecedented times.

Electricity is the blood stream of the economy, specially at this time as the sector plays an important role in ensuring a smooth functioning of all critical institutions such as healthcare facilities, law & order services, and to millions of households as almost the entire population is home bound. Electricity is therefore rightly classified as an essential serve.

While the sector is working 24*7 to ensure smooth functioning of all the activities, the demand has plummeted by around 25-27 percent in the time of the lockdown. This demand reduction coupled with delays in collections is expected to cause a substantial liquidity shortfall for DISCOMs. which further adds to the woes of the power sector.

Hence this project report analyses how can the distribution companies minimise losses by reducing their distribution & AT&C losses

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Company Overview

Tata Power Co Ltd is a Tata Group company and is the biggest integrated power company involved in the business of Generation, Transmission , Distribution, Power Trading, Power Services, Coal Mines and Logistics, Solar PV manufacturing, and associated EPC services. It is serving more than 2.6 million consumers of electricity spanning the cities of Delhi, Mumbai, and Ajmer. The total operational generation capacity of the company stands at 10957 MW of power as of March 2019. 10

Its’s major plants are located in Mundra , Trombay, and Maithon. The company is also currently executing projects of 100 MW Tata Power Delhi Distribution Limited (Tata Power-DDL) is a joint venture between Tata Power and the Government of NCT of Delhi with the majority stake being held by Tata Power Company (51%).

Tata Power-DDL has implemented various power distribution reforms in the capital city and is acknowledged for its consumer-friendly practices.

Since privatization, the Aggregate Technical & Commercial (AT&C) losses in Tata Power-DDL areas have shown a record decline from 53% in July 2002 to 7.79% as of today.

Tata Power-DDL has a registered consumer base of 1.76 million and a peak load of around 2074 MW (recorded on July 2, 2019), the company's operations span across an area of 510 sq. km1

To ensure a constant supply of electricity to its customers, Tata Power has enforced

various

several

world-class

technologies

like

Advance

Distribution Management system or ADMS which is designed to replace the conventional SCADA-DMS-OMS system with features like real-time integration of Smart Meter

1 https://www.tatapower-ddl.com/corporate/our-company/company-profile

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Distributed Generation integration and single data model from GIS , Integrated Geographical Information System (GIS) for instant services, Advanced Metering Infrastructure (AMI), Automated Demand Response (ADR), Smart Street Light Management system, Field Force Automation, Upgraded Network, Integrated Toll-Free Helpline No. 19124, etc. Also, it provides them with various services for their ease and convenience, such as 24X7 Integrated Helpline, Mobile Application for both iOS and Android users, bilingual website, Multiple Payment Avenue, End to End online services for New Connection, etc.

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Key Developments 

Tata Power signed the implementation agreement with Tata Advanced Systems Ltd (TASL) to sale its Strategic Engineering Division (SED) which is engaged in the business of indigenous design, development, production, integration, supply and life cycle support of defence systems at an enterprise value of Rs. 22.3 billion in April 2018.



The Supreme Court (SC) in Oct 2018, directed Central Electricity Regulatory Commission to decide on tariff revision and renegotiation of power purchase agreements of Tata Power's Mundra power plant.



Tata Power through its joint venture company, Resurgent Power (joint venture with ICICI Bank) has signed a share purchase agreement with a consortium of lenders led by State Bank of India (SBI) to acquire 75.01% stake in Prayagraj Power Generation Company Ltd (PPGCL), which owns and operates a 1,980 MW super critical power plant in the state of Uttar Pradesh.

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Geographical Area of Operation (TPDDL)

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Shareholding Pattern Following is the shareholding pattern as of September 2019 2 Category Promoters

Percentage(% holding-

Individuals

Corporate Mutual Funds Financial Institution and Banks Public Total Shares

and

) Bodies 36.2 0.00 0.00 63.8 100

2 https://www.crisilresearch.com/#/industry/power/companyProfileView/TATPOWE

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Business Profile

TATA POWER

Generation

Renewables

Transmission

Power Trading

Distribution

Coal Mining

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Power generation Tata Power group of companies have an operational power generation capacity of 10,957 MW as on March 31, 2019 of which 7340 MW is thermal, 375 MW is thermal waste heat-recovery, 693 MW is hydro and 2,549 MW is renewables. Fuel wise share of installed capacity as on March, 2019

Source: Company reports, CRISIL Research

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Coal business

Tata Power, through its subsidiaries, holds 30% stake in PT Kaltim Prima Coal and a 26% stake in PT Baramulti Suksessarana Tbk in Indonesia. In fiscal 2019, Tata Power signed an agreement to sell its 30% stake in PT Arutmin Indonesia and associated companies in coal trading and infrastructure.

Distribution business

Tata Power has 51% stake in Tata Power Delhi Distribution Limited (TPDDL) which supplies power to northern Delhi, while rest is held by Delhi Government. Revenue of TPDDL rose 7% on-year in fiscal 2019 to ~Rs. 76 billion supported by higher sales which rose ~3% onyear to 8.8 billion units (BU) during the year. Moreover, the AT&C losses of TPDDL stood at 8.2% against 7.9% last year.

Sales from Mumbai business increased by ~3% on-year to ~4.5 BUs from 4.4 BUs in fiscal 2018 even as the company’s total customer base expanded to over 7.01 lakh in fiscal 2018 from 6.86 lakh in previous year.

Tata Power won the bid floated by Ajmer Vidyut Vitran Nigam Ltd for appointment of a distribution franchisee in Ajmer city, Rajasthan. Tata Power Ajmer Distribution Ltd is the wholly owned company of Tata Power formed in April 2017.

Trading business 18

The company has agreed to revise the terms of power purchase agreement (PPA) with Dagachhu Power to reflect the current regulatory and market constraints in importing power from Bhutan.

Renewable business

Tata Power Renewable Energy Ltd (TPREL) is Tata Power's primary investment vehicle for renewable energy based power generation capacity. TRPEL acquired Welspun Renewables Energy Private Ltd. (WREPL) in March 2019 which had an operating capacity of ~2,549 MW (1161 MW -Solar and 1388 MW- Wind) thereby surpassing the 2,500 MW operating capacity mark. WREPL is now a fully owned subsidiary of TPREL and has one of the largest operating solar portfolios spread across India in the states of Rajasthan, Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka, Punjab, Maharashtra, Gujarat and Bihar. Under this acquisition deal, significant green-field risks, including construction and evacuation risks, have been mitigated. Also the assets consists of large solar portfolio with PPAs contracted at healthy tariffs for a period of 25 years.

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The objective of the study Although there have been several mandates and regulations that have been developed for the regulation of the power sector. However, there’s been a considerable amount of reoccurring losses in the power sector, which affects the financial health of Discoms, further putting pressure on the regulatory tariffs. This report evaluates, compares and recommends the various strategies adopted by different Discoms in the power sector for Distribution Loss reduction

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Background & Current Scenario After more than 15 years of the introduction of the Electricity Act 2003, which focuses on the promotion of the electricity industry, protecting the interest of the consumers, ensuring a regular and constant supply of electricity, etc. The Indian power sector has witnessed some major transformation and development including 100% electricity access in rural areas and supply of electricity in a reliable and economical manner However, the distribution utility underperformance has still been a hindrance to the growth of the power sector, with it being a critical link between the power sector and the consumers. To name a few the significant challenges faced by the distribution segment include 

Aggregate transmission and commercial losses



High aggregate financial losses



Poor Cost recovery



Insufficient tariffs

Although there has been a downward trend in the AT&C Losses, however, the AT&C Losses have remained constant for a decade now. With the AT&C losses at close to 23% in the FY2010-2011, there has only been a gradual decrease to 21.4% in the FY2019-203 Reducing the AT&C cost is of critical importance and has a two-pronged advantage 1) It would lead to a reduction of losses 3 https://www.livemint.com/news/india/india-to-privatise-all-electricity-discoms-in-union-territories11589542552771.html

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2) It will provide additional energy that can be supplied to existing or new customers.

Apart from the AT&C losses is the under-recovery of the fixed charges by the state Discoms. The retail tariff consists of two parts: a fixed charge and a variable charge. The under-recovery fixed charges occur due to the mismatch between the actual fixed liability and variable cost liability incurred by a utility to the proportion of cost recovered through fixed charge and energy charge. This kind of tariff structure leads to a mismatch between the cash flows of the discoms as they have a set payment obligation to the generation and transmission companies irrespective of the sale made to the retail consumers. Now, as the significant portion of the fixed cost is collected through the energy sales made every month, having high volatility due to weather conditions/seasons further adds to the financial burden of the discoms. Any abrupt change in the consumption pattern can profoundly impact the cash flow of the discoms, as currently being witnessed during the COVID-19 crisis. This has led to a reduction in the demand for electricity, with all business units and factories being shut down, leading to a fall in consumption. In order to cope up with the situation the Indian government this year also announced a 90000 core injection to provide relief to the already stressed discom sector

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Power Scenario in Delhi in 2002

AT&C/Theft losses range between 53% to 60% of Input • Govt. Subsidies approx. Rs 1,500 cr per annum to bridge Revenue Gap • Condition of Network pathetic • Billing Receivables close to 1 year outstanding • Poor Condition of Consumer Records • Consumer nowhere in focus/Regular black-outs and brown-outs of 4-6 hours

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Competitive Scenario The power sector in India is regulated by the government, and each distribution defined with its geographical area of operation. Due to the complexity of the regulation in the power sector and long learning duration, there are a lot of barriers to entry in this sector. Also, coupled with the public resistance against the privatization of this sector, entry becomes far more difficult for private players to enter this sector. However, with government support and demand for quality electric supply and increasing demand for electric vehicles and appliances, there is furthermore scope for privatization in this sector in the coming years.

Electricity is a scarce resource; the difference between the supply and demand for electricity is enormous. The increasing cost of crude oil for power-generating plants is leading to increased power generation cost to end-users. Since the power sector in India is regulated by the government , power distribution companies do not have the interdependence to raise the power prices on their own.

The end-consumers of electricity do not have the option of chosing their electricity supplier, and even after the introduction of the Electricity Act 2003, in open access, consumers have to pay whooping charges to change the electricity supplier. Moreover, the electricity rates are decided by the government, and the existing scenario of the monopoly of power distribution companies does not offer any choice for consumers to purchase power at a competitive price from other power distribution utilities. The power distribution licenses are allocated to distribute power 24

in differe...