Bhiwandi V1

Overview of Bhiwandi ModelDiscussion on PPP Urban Distribution Franchisee

May 2008*connectedthinkingPwC

CESC - MP Franchisee

ContentsBackground to Distribution Franchisee ModelObjective of the licensee - MSEDCLKey Statistics of BhiwandiBidding ProcessTerm of Franchisee & Distribution Franchisee Agreement Role & Responsibilities SharingResponsibilities of DFResponsibilities of Distribution LicenseeWheeling ChargesRevenue Sharing Treatment of Arrears


PricewaterhouseCoopersMay, 2008

What is distribution franchising?Distribution Franchising is:Awarding franchisee rights to an entity which undertakes distribution and supply of electricity in a designated area (DA), which can be at the feeder/ sub-division/ city levelDistribution Franchisee (DF):Has exclusive sale rights in the designated areaUses existing network, facilities and employeesActs as an intermediary between the distribution company and customersIs solely responsible for maintaining distribution and collection in the DA



Distribution Franchising: Activity structure optionsGenerationEHV S/SMSEDCLEnergy Input MeteringDistribution FranchiseeCapexO&MPlanningFault RestorationMeter ReadingRevenue CollectionCustomer Care



Rationale for DFEnables greater private participation in distributionDF has lower capital requirement vis--vis privatisation allowing smaller players to enter the marketIncreases competition in the distribution segmentDF creates competition for the market as it discovers the performance parameters through a competitive auctionEnhances transparency and accountabilityOwing to its smaller size, a DF is directly accountable to customers for efficiency and supply qualityReduces distribution losses and improves collection efficiencyPrivate participation would ensure AT& C loss reduction



Options for Distribution FranchiseeRevenue CollectionRevenue & O&MInput & InvestmentOutsourcingInput BasedCompensation structure/ bidding criteriaResponsibility of FranchiseeBenefitsMetering/ Billing/ CollectionMetering, Billing and CollectionMetering, Billing, Collection and O&MMetering, Billing, Collection, O&M and Input SupplyMetering, Billing, Collection, O&M, Input Supply and CapexFixed feeFixed fee plus incentiveFixed fee plus incentiveRight on revenue to franchisee. Utility receives bulk supply chargesRight on revenue to franchisee. Utility receives bulk supply charges & depreciated value of capexOperational efficiencyOperational and collection efficiencyOperational and collection efficiency; reduction in manpowerOperational and collection efficiency; reduction in manpower and distribution lossesOperational, collection and technical efficiency; reduction in manpower and distribution losses; Avoided investments



Objectives of Licensee - MSEDCLReduction in technical T&D losses and theftImprovement in Metering, Billing and Revenue CollectionBring innovative approaches to improve collection of arrearsUndertake network evaluation and make capital investments to improve efficiencies Enhancement in customer service qualityTo create and overall win-win scenario for Consumers, MSEDCL and DF Investor



Key Statistics of BhiwandiLoad data174661Consumers

Total Connected Load750MVAMaximum Demand 675MVAExisting Load Capacity545MVAPending Demand from NSC50MVAPresent Shortfall180MVA



Key Statistics of Bhiwandi

Existing Distribution NetworkEHV Substations522 kV Express Feeders522 kV Feeders39100 kV Feeders2HT Overhead Line (CKM)712No. of Poles (HT)9968HT Underground Cable (KM)7LT Overhead Line (CKM)956No. of Poles (LT)17208LT Underground Cable (KM)822 kV/ 433 V DTS2208


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0.16

0.04

0.3

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Consumer Mix

Sheet1

EHV Substations5

22 kV Express Feeders5

22 kV Feeders39

HT Overhead Line (CKM)712

No. of Poles (HT)9968

HT Underground Cable (KM)7

LT Overhead Line (CKM)956

No. of Poles (LT)17208

LT Underground Cable (KM)8

22 kV/ 433 V DTS2208

Name of EHV SubstationCapacity Installed (MVA)Demand (MVA)Connected Load (MVA)No of Feeders

100/ 22 kV, Bhiwandi15023522913

220/ 100/ 22 kV, Temghar15017518410

220/ 22 kV, Kamba1001201348

220/ 22 kV, Padga1251201799

220/ 22 kV, Colourchem2020241

Total (MSEDCL)54567075041

220/ 22 kV, Netivali (Tata)150--3

Residential49%

Commercial16%

Industrial4%

Power Loom30%

Others1%

Sheet1

0

0

0

0

0

Consumer Mix

Sheet2

Sheet3

MBD001A4C0C.doc

EHV S/S

5 No.s

22 kV Express Feeders

5 No.s

22 kV Feeders

39 No.s

HT overhead lines

712 km

HT poles

9968 No.s

HT underground cable

7 km

LT overhead lines

956 km

LT poles

17,208 No.s

LT underground cable

8 km

22 kV / 0.433 kV transformers

2,084

Network Description


Key Statistics of BhiwandiIn spite of the improvements in four consequent years from 2001-02 to 2004-05, the Distribution losses have gone up in 2005-06

Collection efficiency improvements have been primarily attributable to increase in subsidy amount



Bidding ProcessFinancial Evaluation based on levellised input rates



Bidding ProcessBidder Requirements Technical & FinancialFinanciala) Net worthNet worth in the last financial year should be at least Rs. 50 croresb) Cash Accruals (Profit after Tax+ Depreciation)Average Gross Cash Accruals (Profit after Tax + Depreciation) in the last two years should be at least Rs 25 crores.c) Turnover Average annual turnover in the last two years should be at least Rs.250 crores.d) Listed companyThe Bidder or the Promoter should be a company listed on either the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE) or any recognised international stock exchange.



Bidding Process

The Bidders required to bid for annualized Input Rate for power injected by MSEDCL at Input Points in the Franchisee Area for the entire term of DFA. The annualised Input Rate, as quoted by the Bidders shall factor minimum 5% reduction in T&D losses and 4% improvement in collection efficiency every year for first three years from the Effective Date and minimum 3% reduction in T&D losses and 3% improvement in collection efficiency every year after three years and up till seventh anniversary of DFA and minimum 1% reduction in T&D losses and 3% improvement in collection efficiency every year after seventh anniversary and up till the Expiry Date. The Bidder to consider the T&D losses and collection efficiency of 2005-06 as base for estimating the improvement in performance during the term of DFA.



Term of Franchisee & Distribution Franchisee AgreementThe term of the Distribution Franchisee - A period of ten years from the Effective Date

MSEDCL entered into an agreement with the DF. This agreement governs all transactions under such arrangement between the successful bidder and MSEDCL



Role & Responsibilities Sharing

Handover of assets on as-is-where-is basisHandover of willing employees who get selected by the DFSupply of PowerIncentive for past arrears (before appointment of DF)

O&M of the networkMetering, Billing & CollectionPlan capital investments to upgrade the networkArrears collectionMeeting all the obligations of MSEDCL as distribution licensee



Responsibilities of Distribution FranchiseeConsumer RelatedMetering (reading, meter maintenance / replacement, Installation of new meters)Billing (printing and distribution)Collection (both current revenues and arrears)Issuing new connectionsStreet light maintenanceAdherence to MERC all provisions including Supply Code and SoPAttending system faults within its areaAttending consumer grievances

Network RelatedDistribution asset maintenance (wires, poles, DT, switchgear etc.)Network analysis and improvement planningMake capital investment for upgradation of networkResponsible for incurring capex in order to provide new connections in the Franchisee Area. Such expenditure to be sourced from the Service Connection Charges and Service Line Charges collected from consumers



Responsibilities of MSEDCLMSEDCL shall be the sole owner of existing Distribution Assets and assets procured, created under Minimum Investment Plan committed by MSEDCL Handover of physical assets in the circleNetwork assets in field from the start of outgoing 22 kV feeders of EHV S/SAssets in stores as opening inventoryIndependent consultant to physically verify assets & certify opening level of T&D lossesTo compensate DF for the addition of any new asset by DF, at the depreciated value of such asset worked out on the basis of prevailing norms of MSEDCL at the end of DFAMeasure for T&D lossesTo carry out the meter reading jointly with DF on a monthly basis at input point of the Franchisee Area

To carry out capital works as per its Minimum Investment Plan attached in RFP

Handover of willing employees on deputation - Existing MSEDCL Deputation rules will be applicable.



Responsibilities of MSEDCLSupply of energy As per the pre-determined schedule of supply applicable to all circles of MSEDCL till the need for load shedding persists Minimum Assured Energy: 80% of the present energy input to Bhiwandi CircleIn order to meet the demand in Franchisee Area, not satisfied from the quantity supplied by MSEDCL, DF may procure the power from other sources. Such procurement may be facilitated by MSEDCL.MSEDCL will facilitate DF to approach MERC for approval of such procurement scheme at the time of filing ARR petition of MSEDCL.

Operation of arrears settlement mechanism in the circle for the arrears prior to appointment of DF



Wheeling ChargesIn case of procurement of power from sources other than MSEDCL, the wheeling charge shall be applicable on DF for using the distribution network of MSEDCL for distribution of power in the Franchisee Area.The wheeling charge of 7% shall be applicable and amount paid to MSEDCL shall be computed as product of 7% of energy procured by over and above the quantity supplied by MSEDCL and Input Rate applicable for current year.



Revenue SharingDF to share 50% of the revenue with MSEDCL in the event of net annual revenue of DF exceeding the twice of Base Year Annual Revenue. The revenue share amount will be computed as :Revenue share = 50% * {Net Annual Revenue 2 x Base Year Annual Revenue} The Base Year Annual Revenue would be the product of Average Revenue Realisation in Base Year x energy injected in FY 2005-06 at Input Point of Franchisee Area.The net annual revenue of DF includes the collection from consumers towards periodic electricity bills and subsidy amount.



Treatment of ArrearsDF liable to collect the arrears from current live consumers accrued in last one month prior to Effective Date.DF liable to collect the arrears from current live consumers accrued for the duration after three months and before one month prior to Effective Date.Arrears on account of connected live consumers, under any dispute or in the process of litigation on Effective Date, shall be the responsibility of MSEDCL.DF to collect the arrears accrued prior to Effective Date from permanently disconnected consumers. Incentives on arrear collection10% for live consumers beyond three months20% for PD Consumers


Thank You


Bhiwandi V1

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