UDAY Scheme for Discoms

What is Ujjwal Discom Assurance Yojana? What will be the impact of this scheme?

UDAY Scheme for Discoms

[pib] Rights to the Electricity Consumers

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Rights to the Electricity Consumers

The Ministry of Power has for the first time laid down Rights to the Electricity Consumers through “Electricity (Rights of Consumers) Rules, 2020”.

Q.What are the new Rights to the Electricity Consumers as envisaged under Electricity (Rights of Consumers) Rules, 2020?

Rights to the Electricity Consumers: A highlight

Following key areas are covered in the Electricity (Rights of consumers) Rules:

  • Rights of consumers and Obligations of Distribution licensees
  • Release of new connection and modification in an existing connection
  • Metering arrangement
  • Billing and Payment
  • Disconnection and Reconnection
  • Reliability of supply
  • Consumer as Prosumer
  • Standards of Performance of licensee
  • Compensation Mechanism
  • Call Centre for Consumer Services
  • Grievance redressal mechanism

(1) Rights and Obligations

  • It is the duty of every distribution licensee to supply electricity on request made by an owner or occupier of any premises in line with the provisions of the Act.
  • It is the right of the consumer to have minimum standards of service for the supply of electricity from the distribution licensee.

(2) Release of new connection and modification in an existing connection

  • Transparent, simple, and time-bound processes,
  • The applicant has an option for online application,
  • The maximum time period of 7 days in metro cities and 15 days in other municipal areas and 30 days in rural areas identified to provide new connections and modify existing connections.

(3) Metering

  • No connection shall be given without a meter;
  • Meter shall be the smart pre-payment meter or pre-payment meter;
  • Provision of Testing of meters;
  • Provisions for replacement of defective or burnt or stolen meters specified.

(4) Billing and payment

  • Transparency in applicable consumer tariff and bills;
  • A consumer shall have the option to pay bills online or offline;
  • Provision for advance payment of bills.

(5) Reliability of supply

  • The distribution licensee shall supply 24×7 powers to all consumers. However, the Commission may specify lower hours of supply for some categories of consumers like agriculture;
  • The distribution licensee shall put in place a mechanism, preferably with automated tools to the extent possible, for monitoring and restoring outages.

(6) Consumer as prosumer

  • The prosumers will maintain consumer status and have the same rights as the general consumer.
  • They will also have the right to set up RE generation units including rooftop solar photovoltaic (PV) systems – either by themselves or through a service provider.
  • Net metering for loads up to ten kW and for gross metering for loads above ten kW.

(7) Standards of Performance

  • The Commission shall notify the standards of performance for the distribution licensees;
  • Compensation amount to be paid to the consumers by the distribution licensees for violation of standards of performance.

(8) Compensation mechanism

  • Automatic compensation shall be paid to consumers for which parameters on standards of performance can be monitored remotely;
  • The standards of performance for which the compensation is required to be paid by the distribution licensee.

(9) Call Centre for Consumer Services

  • Distribution licensee shall establish a centralized 24×7 toll-free call center;
  • Licensees shall endeavor to provide all services through a common Customer Relation Manager (CRM) System to get a unified view.

(10) Grievance redressal mechanism

  • Consumer Grievance Redressal Forum (CGRF) to include consumer and prosumer representatives;
  • The consumer grievance redressal has been made easy by making it multi-layered and the number of consumer’s representatives has been increased from one to four.
  • The licensee shall specify the time within which various types of grievances by the different levels of the forums are to be resolved. Maximum timeline of 45 days specified for grievance redressal.

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

Fiscal support to the power sector

Note4Students

From UPSC perspective, the following things are important :

Prelims level : UDAY scheme

Mains level : UDAY scheme, its success and failures

Part of the package announced by Finance Minister was a Rs 90,000-crore liquidity injection into power distribution companies (or discoms).

Practice question:

Ujwal DISCOM Assurance Yojana (UDAY) has failed to turn around the precarious financial position of state power DISCOMs in India. Discuss.

Fiscal push for DISCOMs

  • The move is aimed at helping the discoms clear their dues with gencos (or electricity generation companies), who in turn can clear their outstanding dues with suppliers, such as coal miners, easing some of the working capital woes of Coal India Ltd and contract miners.
  • This is subject to the condition that the Centre will act as guarantor for loans given by the state-owned power finance companies such as PFC and REC Ltd to the discoms.

Why was this needed?

  • The primary trigger is the poor financial condition and revenue collection abilities of most state discoms.
  • This is despite several interventions, including a scheme called UDAY that was launched in 2015 to fix the problems of a sector where the upstream side (electricity generation) was drawing investments even as the downstream (distribution) side was leaking.

How do the DISCOMs work?

To understand how the sector works, we have to imagine a three-stage process.

  • First stage: Electricity is generated at thermal, hydro or renewable energy power plants, which are operated by either state-owned companies or private companies.
  • Second stage: The generated electricity then moves through a complex transmission grid system comprising electricity substations, transformers, and power lines that connect electricity producers and the end-consumers.
  • The entire electricity grid consists of hundreds of thousands of miles of high-voltage power lines and millions of miles of low-voltage power lines with distribution transformers that connect thousands of power plants to millions of electricity customers all across the country.
  • Third stage: This last-mile link is where discoms come in, operated largely by state governments. However, in cities such as Delhi, Mumbai, Ahmedabad, and Kolkata, private entities own the entire distribution business or parts of it.

Why there is a problem?

  • Discoms essentially purchase power from generation companies through power purchase agreements (PPAs), and then supply it to their consumers (in their area of distribution).
  • The key issue with the power sector currently is the continuing problem of the poor financial situation of state discoms.
  • This has been affecting their ability to buy power for supply, and the ability to invest in improving the distribution infrastructure. Consequently, this impacts the quality of electricity that consumers receive.

There are two fundamental problems here:

1) Lack of competitiveness

  • One, in India, electricity price for certain segments such as agriculture and the domestic category (what we use in our homes) is cross-subsidised by the industries (factories) and the commercial sector (shops, malls).
  • This affects the competitiveness of the industry.

2) Transmission and distribution losses

  • There is the problem of AT&C (aggregate transmission and distribution losses), which is a technical term that stands for the gap in the bills that it raises and the final collection process from end-consumers.
  • As a result, the discoms are perennially short of funds, even to pay those supplying power to them, resulting in a cascading impact up the value chain.

Back2Basics: UDAY Scheme

UDAY scheme for financial turnaround of Power Distribution Companies

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

[pib] Draft Electricity Act (Amendment) Bill, 2020

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Highlights of the policy

The Ministry of Power has issued a draft proposal for amendment of Electricity Act, 2003 in the form of the draft Electricity Act (Amendment) Bill, 2020.

Draft Electricity Act (Amendment) Bill 2020

Major amendments proposed in the Electricity Act are as follows:

Viability of DISCOMs

  • Cost reflective Tariff: To eliminate the tendency of some Commissions to provide for regulatory assets, it is being provided that the Commissions shall determine tariffs that are reflective of  cost so as to enable Discoms to recover their costs.
  • Direct Benefit Transfer: It is proposed that tariff be determined by Commissions without taking into account the subsidy, which will be given directly by the government to the consumers.

Sanctity of Contracts

  • Establishment of Electricity Contract Enforcement Authority:  Such an authority headed by a retired Judge of the High Court is proposed to be set-up with powers of the Civil Court to enforce performance of contracts related to purchasing or sale or transmission of power between a generating, distribution or transmission companies.
  • Establishment of adequate Payment Security Mechanism for scheduling of electricity: It is proposed to empower Load Dispatch Centres to oversee the establishment of adequate payment security mechanism before scheduling dispatch of electricity, as per contracts.

Strengthening the regulatory regime

  • Strengthening of the Appellate Tribunal (APTEL): It proposed to increase the strength of APTEL to seven apart from the Chairperson so that multiple benches can be set-up to facilitate quick disposal of cases.
  • Doing away with multiple Selection Committees: It is proposed to have one Selection Committee for selection of Chairpersons and Members of the Central and State Commissions and uniform qualifications for appointments of Chairperson and Members.
  • Penalties: In order to ensure compliance of the provisions of the Electricity Act and orders of the Commission, section 142 and section 146 of the Electricity Act are proposed to be amended to provide for higher penalties.

Renewable and Hydro Energy

  • National Renewable Energy Policy: It is proposed to provide for a policy document for the development and promotion of generation of electricity from renewable sources of energy. It is also proposed that a minimum percentage of purchase of electricity from hydro sources of energy is to be specified by the Commissions.
  • Penalties: It is being further proposed to levy penalties for non-fulfilment of obligation to buy electricity from renewable and/or hydro sources of energy.

Miscellaneous

  • Cross border trade in Electricity: Provisions have been added to facilitate and develop trade in electricity with other countries.
  • Franchisees and Distribution sub licensees: It is proposed to provide that the Distribution Companies, if they so desire, may engage Franchisees or Sub-Distribution Licensees to distribute electricity on its behalf in a particular area within its area of supply. However, it will be the DISCOM which shall be the licensee, and therefore, ultimately responsible for ensuring quality distribution of electricity in its area of supply.

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

[op-ed snap] Power replay

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3-Indian power sector-Problems faced by the Discoms and their solutions.

Context

Five years after the launch of UDAY, power-sector once again seems to be going deep into the troubles.

Where the Discoms stand now?

  • Losses increased: The losses of state-owned distribution companies (discoms) risen.
  • Dues increased: Discom’s dues for power purchases have also surged.
    • Dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
    • Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
    • Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.

Components of UDAY and progress made

  • The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components
  • First-Reduction in AT&C losses: While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY.
    • AT&C (Aggregate Technical and Commercial) losses have declined in some states, but not to the extent envisaged.
    • Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.
  • Second- Timely revision of tariffs: While some states have raised power tariffs, the hikes have not been sufficient.
    • In tariff revision decisions political considerations prevailed over commercial decisions.
  • Third- elimination of the gap between per unit of cost and revenue realised: The gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged.
    • Because of this discoms were forced to reduce their power purchases and delay payments to power producers.

Way forward:

  • The new plan, being formulated by the government reportedly, aims to address these issues by-
    • Reducing electricity losses.
    • Eliminating the tariff gap.
    • Smart metering.
    • Privatising discoms.
    • Having distribution franchisees.
  • Altering incentive structure: Along with the above, the Centre should also look at altering the incentive structures of states in order to ensure compliance.
  • Provision of penalties: Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.

 

 

 

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

Explained: Why power costs vary across states

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Discrepancies in Indian power sector

  • Recently a MP from Rajya Sabha suggested that power tariffs should be uniform across the country so that affordable power is available to all.
  • He complained that consumers in Punjab paid Rs 8 per unit of electricity, much more than consumers in neighbouring Himachal Pradesh and J&K.

Power tariffs across state

  • The electricity tariff paid by consumers in each state is directly reflective of the cost of power procurement by the power distribution companies (discoms) in the state.
  • There are state-specific factors for this.
  • So, states such as Jharkhand or Odisha or Chhattisgarh, which have had coal-fired thermal capacity, would typically have lower tariffs because of the base-load capacities that they possess.
  • Or, states such as Himachal or Uttarakhand would have low tariffs because of hydropower capacities .
  • On the other hand, a state like Gujarat, which has capacities based on imported coal, will have comparatively higher tariffs.

So is the idea of having a flat countrywide rate feasible?

  • The State Electricity Regulatory Commissions (SERCs) decide on the power tariff after utilities file their cost of power with the regulators.
  • Because power tariffs entail a number of state-specific factors a uniform nationwide tariff is a proposition that would be difficult to implement.
  • Electricity was a state subject and there has to be consensus for uniform power tariffs among state players.

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

[op-ed snap] Power play

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Reforms in Power Sector

CONTEXT

 

In a welcome move, public sector companies NTPC and Power Grid Corporation of India have formed a joint venture to set up a national electricity distribution company.

Implications of this decision

1.Power Supply Chain – The decision paves the way for a central public sector entity to enter the power supply business, which up until now has been largely the preserve of state distribution companies.

2.Distribution – Coming at a time when state discoms are struggling to contain their losses, the move is likely to have far reaching ramifications for the distribution segment.

  • Over the years, successive governments have tried to address issues plaguing the power distribution segment, but in vain.
  • The segment is the weakest link in the power chain, and its poor health affects the entire power sector.
  • In 2015, the NDA government had launched the Ujwal DISCOM Assurance Yojana (UDAY) to turn around the fortunes of beleaguered state discoms.
  • But almost four years later, discoms continue to struggle, plagued by a host of issues ranging from inadequate tariff hikes, to high aggregate technical and commercial losses, inadequate and untimely subsidy disbursements, among others.
  • Stressing Banking Sector – Their flagging fortunes have not only affected power generation companies, but have also caused stress in the banking sector.

National electricity distribution company

  • The creation of a national electricity distribution company, which also serves as a central electricity buying agency, could potentially address several of these issues.
  • Addressing pertinent Issues – It could bring relief to power producers, bring stranded capacity back to life, ensure timely payment and address the issue of stressed assets in power generation.
  • Benefiting Consumers – The new entity could also procure electricity at competitive rates, the benefits of which could then be passed on to end consumers.

Other Reforms

The move to create such an entity also signals the possibility of another round of reforms in power distribution,

1.The separation of content and carriage: Carriage refers to distribution, while content refers to electricity supply.

  • Separating them would allow consumers to buy electricity from a power company of their choice.
  • In a market that is currently characterised by geographical monopolies, this would help usher in competition.

2. Rationalising the power tariff structure

  • Such measures along with the creation of a national distribution company also raise the possibility of rationalising the power tariff structure across the country.
  • Currently, the power market in India is highly fragmented.
  • Different state discoms charge different tariffs to different customers.
  • These moves could potentially bring about a rationalisation in tariffs by providing national pricing benchmark across different categories of customers.

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

[op-ed snap] Power under pressure

Note4Students

From UPSC perspective, the following things are important :

Prelims level : UDAY

Mains level : UDAY has not been Successful in achieving its aim.

CONTEXT

Launched in November 2015, the Ujwal DISCOM Assurance Yojana (UDAY) was designed to turn around the precarious financial position of state distribution companies. But as the NDA government ends its term, indications are that the turnaround hasn’t materialised, with several targets being missed.

Background

  • Broadly, the scheme had three critical components.
  • Takeover of discom debt by state governments, reduction in aggregate technical and commercial (AT&C) losses, timely tariff revisions and elimination of the gap between the average per unit cost of supply (ACS) and average revenue realised (ARR) by FY19.
  1. AT&C losses
  • First, at the aggregate level, the AT&C losses for major states stood at 19.05 per cent as against the target of reducing them to 15 per cent by the end of FY19.
  • In the case of some states, especially in the northern and central parts of the country, the losses are of a much higher magnitude, suggesting that pilferage continues to be rampant.

2. ACS- ARR Gap

While the ACS-ARR gap was supposed to be eliminated by FY19, it remains as high as Rs 0.25 per unit. In many states, the gap is even higher. Part of the problem can be traced to inadequate tariff hikes. While it is true that some states have aggressively raised tariffs, the median hike remains muted. This is where political compulsions overtake commercial decisions.

3. Power subsidy

Then there’s also the issue of whether the power subsidy released by state governments is adequate. As a result, discoms have reported financial losses to the tune of Rs 21,658 crore at the end of FY19, reversing the declining trend since the launch of UDAY, say reports.

Impact

  • This deterioration in the financial position of discoms does not bode well for the entire power sector chain.
  • Reports suggest that dues by state discoms to power generators have in fact risen.
  • And though the recent CERC order on tariff relief for independent power producers is positive for producers, it runs the risk of timely realisation, as the financial position of discoms continues to precarious.

Conclusion

Other Inefficiencies –

  • Apart from these, there are several other operational efficiency targets under UDAY, such as feeder metering, smart metering and feeder segregation. Progress on these is mixed.
  • For instance, not much progress has been made in the case of smart metering above 200 and upto 500 kwh and above 500 kwh.

Need for quick action – These issues need to be addressed quickly or else discom losses will rise further to levels where talks of another bailout are likely to surface.

More fiscal space with states – The only difference being that, this time around, state governments have little fiscal space to offer support.

By Root

Caretaker @civilsdaily

UDAY Scheme for Discoms

Govt must learn from its failure before launching UDAY 2.0

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: UDAY Scheme

Mains level: The newscard critically evaluates UDAY Scheme


News

  • While the Centre plans to come up with Ujjwal DISCOM Assurance Yojana (UDAY) 2.0 after the first one failed, experts highlights certain issues to prevent it against failure.
  • The Ministry of Power has put its faith in the second leg of power distribution company reforms under the UDAY 2.0.

UDAY 1.0 was a failure

  1. When the government launched UDAY in 2015, it wanted to improve the financial health and operational efficiency of the country’s debt-ridden power distribution companies.
  2. However, the scheme failed to achieve this target.
  3. According to the latest numbers, the nationwide AT&C losses stood at 18.6 per cent at the end 2017-18.
  4. So far, only seven states including, Tamil Nadu, Telangana, Kerala, Gujarat, Andhra Pradesh, Goa and Himachal Pradesh, have registered losses below 15 per cent while rest of the states have failed to achieve even this.
  5. The scheme also requires DISCOMs to bring down the gap between average cost of supply and average revenue realized to zero.
  6. Instead of reducing this gap, a number of states — Punjab, Jammu and Kashmir, Manipur and Goa — have seen this gap widen in the last few years.
  7. It added that only few states like Gujarat, Karnataka, Himachal Pradesh and Telangana have performed well on most parameters of the scheme.

Way Forward

  1. UDAY 2 addresses the problems of meter reading, billing, collections and leakages or theft.
  2. The government should ensure that short-term borrowings by DISCOMS are monitored.
  3. DISCOMS should get regular payments.
  4. All states should follow one methodology to measure aggregate technical and commercial (AT&C).

Read more about UDAY Scheme at:

UDAY scheme for financial turnaround of Power Distribution Companies

By Root

Caretaker @civilsdaily

UDAY: Reviving Power Discoms

In a bid to rescue almost bankrupt state electricity retailers, the Cabinet recently approved this scheme for reviving power utilities having debt amounting to Rs 4.3 lakh crore.

uday-head-for-BLOG

What is Ujjwal Discom Assurance Yojana?

UDAY provides for the financial turnaround and revival of Power Distribution companies (DISCOMs), and importantly also ensures a sustainable permanent solution to the problem. It has ambitious target of making all discoms profitable by 2018-19.

The scheme will ease the financial crunch faced by power distribution companies, that has impaired their ability to buy electricity.

It is based on the premise that it is states’ responsibility to ensure that discoms become financially viable.

UDAY

 


How UDAY will revive Discoms?

It has all the 3 elements —

  1. Clear up the legacy issues of past losses and debt.
  2. Provide a financial road map to bring tariffs in line with costs by FY19.
  3. Provide enough deterrents for the state govt to not allow the state discoms to become loss ridden post FY18, as losses start to impact their FRBM limits.
  • The State govt. will takeover the discom liabilities over 2-5 year period.
  • This will allow discoms to convert their debt into State bond. These bonds will have a maturity period of 10-15 years.
  • It will allow transfer of 75% outstanding debts incurred by stressed discoms to States’ debt, 50% in 2015-16 and 25% in 2016-17.
  • The central government will not include the loans of the discoms in calculation of the state’s deficit till 2016-17.

Why are these Discoms so stressed?

There are various reasons that lead to Discoms becoming unsustainable over the period of time.

  1. Politics of free power, repressed tariffs and power thefts leading high transmission losses.
  2. Poor infrastructure and low standard of management.
  3. Power subsidies are given to all, irrespective of rich/poor.
  4. Discoms in states of Rajasthan, Tamil Nadu and UP are the most stressed ones.

Almost 25% T&D ( Transmission & Distribution) losses suffered by discoms. Remaining 75% is sold at a price much lower than discoms’ procurement costs. Wondering Why??

The most obvious reason is political interference, i.e. tariff is set by a group of largely political appointees.

Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development.

What will be the impact of this scheme?

  • It is expected to help the banks in managing their bad loans.
  • It will relieve discoms who can push power distribution in right way.
  • It will allow states to align tariff costs, so that discoms run on a sustainable basis.

What are thrust areas of UDAY to turnaround discoms?

  1. Improve operational efficiency.
  2. Reduction in cost of power – By monitoring technical and commercial losses by smart metering and feeder separation.
  3. Reduction in the interest cost of discoms.
  4. Enforcing financial discipline on discoms through alignment with States’ finances.

What could be potential challenge to UDAY?

  • Electricity is not a central subject, states’ cannot be made to participate in the programme.
  • Finding buyers for such bonds might prove difficult, as these would enjoy the SLR status.
  • It has not laid down a specific performance-monitoring and compliance mechanism.
  • It does not cover inadequate investment in network & poor supply, which is essential for reliable and quality supply.
  • No central monetary assistance is provided, rather states’ will be provided subsidised funding from the central govt.’s power schemes as well as priority in supply of coal.

Published with inputs from Pushpendra

 

By Root

Caretaker @civilsdaily

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