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Chapter 1

Introduction

Electricity is one of the prime movers of economic development. The

availability and accessibility of affordable and qualitative power, gives fuel to the

engine of economic growth. In India, the total installed generation capacity is over

1,35,000 MW with number of consumers over 144 million1 and in every state

either the state electricity boards (SEBs) or the state-owned power utilities are

playing significant role in generating, transmitting, and supplying the electricity.

Haryana, a state moving ahead to achieve ‘self-sufficiency in power’; is facing

various challenges in meeting electricity demands of consumers like un-economic

tariffs for agriculture, lower slabs of domestic consumption, Aggregate

Transmission and Commercial (AT&C) losses which often disguise large-scale

theft, and low billing and collection efficiency.

From last two decades, the power sector is facing commercial problems on

account of non-remunerative tariffs, cross subsidies, and low collection efficiency.

Due to low tariffs for agricultural and domestic consumers, the power sector is

helpless to divert scarce resources from the other sectors. The power sector has its

own financial problems which make it incapable in meeting its financial

requirements. The operational efficiencies of power utilities play a significant role

in full utilization of economic resources. Over the period, the Transmission and

Distribution (T&D) losses have remained more than 20% and are putting pressure

on the financial health of utilities. However, the state governments have recognized

the need to accelerate power reforms and also have decided to invest more money

on renovation and modernization of power plants. Even the experts identified by

1 This information is retrieved from http://www.powermin.nic.in/JSP_SERVLETS/internal.jsp# on5th Jun 2012.

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the Government for guidance and consultancy services, have suggested to reduce

the technical and commercial losses termed as Aggregate Technical and

Commercial (AT&C) losses. In Financial Year (FY) 2002-03 during 10th five year

plan, the Government of India (GoI) launched the Accelerated Power Development

& Reform Programme (APDRP), as an initiative to give a fillip to the reform

process in the power sector and for strengthening sub–transmission and

distribution network. The main objectives of the programme were to improve

financial viability of state power utilities and to reduce aggregate technical and

commercial (AT&C) losses to around 15%. However, the programme remained

fail in achieving its objective. In 2008 during the 11th five year plan, the

Government of India (GoI) launched Restructured Accelerated Power

Development & Reform Programme (R-APDRP) with revised terms and

conditions by focusing upon actual and demonstrable performance in terms of

sustained loss reduction, establishment of reliable and automated systems, and the

adoption of Information Technology in energy accounting. The objective of R-

APDRP which is still under progress is to reduce the AT&C losses from over 30

per cent to less than 15 per cent over the period of five years. The Government has

tried to automate and integrate various utility processes like Connections

Management, Asset Management, Maintenance Management, Metering, Billing

and Collection, Energy Audit, Geographical Information System (GIS) based

Consumer Indexing, Network mapping, Customer care, and Management

Information System2. It is stated in the review of R-APDRP that in case, the

programme remained fail in achieving its objectives, then reasons for its failure

2 The information is retrieved fromhttp://geospatialtoday.com/gst/index.php?option=com_content&view=article&id=1292:r-apdrp-lessons-so-far&catid=48:articles&Itemid=84 on 20th March, 2012.

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will be the wrong approach of both the Ministry of Power and the Power Financial

Corporation3.

Haryana Power Sector

In 1970, Haryana became the first state in India to achieve 100% rural

electrification and thereafter, the agricultural subsidies and lack of financial

performance made the erstwhile Haryana State Electricity Board (HSEB) suffering

with huge financial losses. Due to lack of financial support, the HSEB became

incapable to spend over renovation and modernization (R&M) activities related to

power plants. In 1998, the HSEB was restructured and unbundled into separate

Haryana Power Utilities (HPUs), each responsible for generation, transmission,

and distribution functions. Thereafter, various measures have been taken to

increase the generation of electricity with capacity addition plans. The financial

health of HPUs has become unsound due to various reasons including rising T& D

losses, un-economic and subsidized tariffs for agricultural consumers, disguised

large-scale theft practices, lower slabs of domestic consumption, and low billing

and collection efficiency4. The Government has made huge investments to improve

the power supply position and also to encourage private players for their active

participation in generation and distribution activities, so that uninterrupted power

supply can be delivered to the consumers. But the private players are not interested

to support Government due to various problems affecting the power sector. It has

been stated that improvement of energy efficiency can contribute considerably to

reduce the gap between supply and demand because every unit of energy saved is

3 This information is taken from a research study entitled “Review of APDRP and RAPDRP”submitted by Ambuj Lal (2011) in Institute of Energy Management and Research and the study isretrieved fromhttp://greatlakes.edu.in/gurgaon/pdf/Student_Papers/Review_of_APDRP_and_RAPDRP_Ambuj_Lal.pdf on dated 23rd March, 2012.4 The information is taken from Tenth Five Year Plan which is retrieved fromhttp://planningcommission.nic.in/ on 24th March, 2012.

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equivalent to 1.3 units of energy generated5. Ex. Union Minister of Power Sh.

Sushil Kumar Shinde admited the fact that the power sector cannot become

sustainable solely by increasing generation capacity, but it requires addressing

Aggregate Technical and Commercial (AT&C) losses, expansion of transmission

network, and augmentation of associated distribution system. The Economic

Survey of Haryana (2011-12) states that Haryana is dependent upon limited

thermal generation capacity as the State has limited availability of natural

resources, low potential for hydro generation, insufficient wind velocity, lack of

capacity to harness solar resources. On the other hand, with rapid industrialization,

more than a thousand medium and large industries have been established in

Haryana including Maruti Udyog Limited, Escorts, Hero Honda, Alcatel, Sony

India, Whirlpool India, and Bharti Telecom. The HPUs are running into huge

losses over almost seven years denting the image of public sector in Haryana. The

utilities are required to be transformed effectively from heavy losses to the healthy

profits by taking steps for improving the efficiency, adopting new power saving

devices, reducing revenue losses on account of substandard material, and

improving quality of supplied electricity. A major reformation is required

including strategies and tactics to renegotiate the power purchase agreements

(PPA), reduction of interest rates on loans, curbing the power theft, and reduction

in AT&C losses.

Supply and Transmission of Electricity at National and International Levels

Efficiency describes the extent to which time, effort or cost is well used for the

5 The information is retrieved from www.dhbvn.com, the website of DHBVNL i.e. Haryana’sdistribution utility on dated 24.12.2009

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intended task or purpose6. It refers to the use of resources so as to maximize the

production of goods and services and a system is said to be more efficient than

another (in relative terms) if it can provide more goods and services for society

without using more resources7. Further, in business context, efficiency can be

defined as the ratio between the input to run a business operation and the output

gained from the business and when improving operational efficiency, the output to

input ratio improves8. In electricity supply and transmission system, the input

category covers power infrastructure including transmission and distribution lines,

transformers, and measurement systems and the output category covers the volume

of electricity generated and services related to distribution of generated electricity.

While improving efficiency, there are few alternatives9:

(i) Same for less, i.e. same output for less input

(ii) More for same, i.e. more output for same input

(iii) Much more for more, i.e. much more output for more input

In electricity supply and transmission system, there are three functional stages

i.e. generation, transmission, and distribution. The inefficiencies are directly

related to technical and non-technical losses and these losses refer to the amounts

of electricity injected into the transmission and distribution grids that are not paid

by the users. However, the technical losses occur naturally due to physical

properties of components of power system’ infrastructure and consist mainly of

power dissipation in electricity system components such as transmission and

6 This definition of efficiency is retrieved from http://en.wikipedia.org/wiki/Efficiency on 25thNovember, 2012.7 This definition is retrieved from http://en.wikipedia.org/wiki/Economic_efficiency#cite_note-1 on24th November 2012.8 This definition is retrieved from http://en.wikipedia.org/wiki/Operational_efficiency on 25thNovember, 20129 This information is retrieved from http://en.wikipedia.org/wiki/Operational_efficiency#cite_note-2 on 25th November, 2012.

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distribution lines, transformers, and measurement systems. Common examples of

such losses include the power loss caused by resistance of transmission lines and

cables, and the no-load losses of power transformers. The Non-technical losses are

caused by actions external to the power system and consist primarily of electricity

theft, non-payment by customers, and errors in accounting and record-keeping. The

Non-technical losses are measured and traced by using more sensors and meters in

power grids. The sum of technical and non-technical losses is called the

Aggregated Technical and Commercial (AT&C) losses. It is admitted that

optimization of technical losses in electricity transmission and distribution

grids is an engineering issue, involving classic tools of power systems planning

and modelling10. Although it is possible to reduce technical losses to an extent by

managing the overloading on transformers which further depends upon the amount

of overload and efficiency of the replacement transformer. Worldwide, the power

utilities are suffering from such transmission & distribution (T&D) losses and it is

found that on average these losses have values between 4 percent and 12 percent of

the electricity consumption while 80 percent of the technical losses occur in the

medium and low voltage distribution grid, and 20 percent in the high voltage

transmission grid11.

The technical losses can be reduced by replacing existing transformers with

ones with lower no-load losses and by making extensive use of load-dependent

reactive power compensation. Further, the distributed generation (DG) units –

which generate energy near its end use rather than in centralized plants, can also

10 This information is taken from a background paper entitled “Reducing Technical andNon‐Technical Losses in the Power Sector” submitted for the World Bank Group Energy SectorStrategy in July 2009.11 The information is taken from an article entitled “Using Smart Grid to make a more efficienttransmission & distribution network” which is retrieved fromhttp://smartgridsherpa.com/blog/using-smart-grid-to-make-a-more-efficient-transmission-distribution-network on dated 5th November 2012.

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significantly reduce transmission losses12. According to National Encyclopaedia13

(2007), the world development indicators on power transmission and distribution

(T&D) losses states that the largest T&D losses are 92.87, 87.12, 68.95, and 53.06

respectively in Republic of the Congo, Benin, Albania, and Togo while the lowest

losses (% of output) are 1.45, 1.64, 1.81, and 2.19 respectively in Bahrain,

Malaysia, El Salvador, and Trinidad and Tobago. The T&D losses in India,

Pakistan, Brazil, Sri Lanka, Hong Kong, Russia, USA, China and Japan are 24.70,

19.44, 16.01, 15.77, 12.89, 10.35, 6.18, 5.98, and 4.54 respectively14. India has

24.70% T&D losses and it stands at 13th rank among the countries with largest

T&D losses in the world. However, as per sample studies carried out by

independent agencies, these losses have been estimated to be as high as 50 percent

in some states of India15. According to a report16 (2000), there are several

technology alternatives suitable to power system interconnection especially in

small transmission networks such as, Alternating Current (AC), High Voltage

Direct Current (HVDC) and Hybrid AC/HVDC interconnection systems. But in

countries like India, the AC system may not be economically feasible due to load

flow problems and/or inter-area oscillations that can cause instability of the

interconnected system. Further, it is found that worldwide, various countries are

using Smart Grid monitoring system in which overloaded distribution transformers

12 The information is retrieved fromhttp://www.smartgridnews.com/artman/publish/Technologies_DG_Renewables/Distributed-generation-The-path-to-lower-transmission-losses-4313.html on 5th November 2012.13 The information losses is retrieved from http://www.nationsencyclopedia.com/WorldStats/WDI-electric-power-transmission-output.html on 25th November, 2012.14 The detailed information is given in Annexure ‘C’ of this research study entitled ‘WorldDevelopment Indicators on Power Transmission and Distribution Losses (% of output)’.15 The information is taken from a published paper entitled “Transmission and Distribution losses(Power)” which is retrieved from http://www.teriin.org/upfiles/pub/papers/ft33.pdf on dated 20thNovember 2012.16 The information is taken from page no. 2 of a report entitled “Power Interconnection in the APECRegion: Current status and Future potentials” published by Asia Pacific Energy Research Centre(March 2000).

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are identified for replacement as soon as loads become sufficient to shorten the

expected life of a transformer17. The European Technology Platform Smart Grid

(ETPSG) defines the smart grid as an electricity network that can intelligently

integrate the actions of all users connected to it – generators, consumers and those

that do both – in order to efficiently deliver sustainable, economic and secure

electricity supplies18.

From operational point of view, metering and billing for consumed electricity

are two critical functions in ensuring the financial viability of power utilities and

these functions require specific management approaches. Technical losses

represent an economic loss for the country and its optimization should be

performed from a country’s perspective while the Non-technical losses represent

an avoidable financial loss for the utility. In case of more technical and non-

technical losses, some level of poor management of the utility is responsible. If

tried, the non-technical losses can be reduced with little loss of welfare, while their

continuation jeopardizes the financial sustainability of the power sector and harms

well-behaving-electricity consumers, taxpayers, socially disadvantaged segments,

and the country as a whole19. The use of smart meters increases the capacity of

utilities to automate the functions relating to metering, billing, and other customer

services. The efficiencies in the operations of electricity supply and transmission

system, have also become a big concern due to rise in fuel prices i.e. coal and oil

17 This information is retrieved from an article entitled “Reducing distribution transformer lossesthrough the use of Smart Grid monitoring” published by McBee, Kerry D (2009) in NorthAmerican Power Symposium (NAPS); the article is retrieved fromhttp://ieeexplore.ieee.org/xpl/articleDetails.jsp;jsessionid=H33wPGnYMHBQblbgq04vWCYC2BptrFQK8xggBz8QwxyqbJn2ndlH!-1098901319?arnumber=5483980&contentType=Conference+Publications on 8th November 2012.18 This definition is retrieved from http://www.globalsmartgridfederation.org/smartgriddef.html on24th November, 2012.19 This information is taken from the background paper entitled “Reducing Technical andNon‐Technical Losses in the Power Sector” presented for World Bank Group Energy SectorStrategy in July 2009.

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prices. In its World Energy Outlook 2008, the International Energy Agency

forecasts world oil prices rebounding to about US$130 (2007 U.S. dollars) per

barrel in 2030. For using Smart grid, worldwide, the electricity sector is

undergoing a fundamental transformation. The Smart grid is an electrical grid that

uses information and communications technology to gather and act on information,

such as information about the behaviors of suppliers and consumers, in an

automated fashion to improve the efficiency, reliability, economics, and

sustainability of the production and distribution of electricity20. The smart grids are

adopted to use technologies that improve fault detection and allow self-healing of

the network without the intervention of technicians21. This ensures more reliable

supply of electricity, and reduces vulnerability to natural disasters or attack.

Further, a smart grid replaces analog mechanical meters with digital meters that

record usage in real time and provides a communication path extending from

generation plants to electrical outlets and other smart grid-enabled devices. The

smart devices are installed in home and businesses which track the use of

electricity and during the peak demand hours, the utilities communicate these

smart devices to reduce the consumption to prevent system overloads. By customer

option, such devices can shut down during times of peak demand. Using artificial

intelligence programming techniques, Fujian power grid in China created a wide

area protection system that is rapidly able to accurately calculate a control strategy

and execute it22.

20 This definition is given by U.S. Department of Energy and retrieved from its website on 18th

June, 2012.21 The information is taken from an article entitled “Smart Grid” which is retrieved fromhttp://en.wikipedia.org/wiki/Smart_grid#cite_note-0 on 11th November, 2012.22 The information is taken from an article entitled “Smart Grid” which is retrieved fromhttp://en.wikipedia.org/wiki/Smart_grid#cite_note-0 on 11th November, 2012.

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According to a case study23, India’s transmission and distribution losses are

among the highest in the world. The study states that electricity losses in India

during transmission and distribution are extremely high and vary between 30 to

45%. The theft of electricity, common in most parts of urban India, amounts to

1.5% of India's GDP. Further, the case study clarifies that no other country suffers

revenue losses on this scale. In China, Asia's other emerging economic giant, no

more than 3% of the nation's power supply is lost to theft as part of 8% total power

transmission losses. Organization of Economic Cooperative Development (OECD)

nations has transmission and distribution losses of just 7%. In India, these losses

remained highest i.e. 28.65 in 2001 while its lowest value was 16.36 in 197124.

However, there is wide variation of losses among the state electricity boards and

utilities of India and the losses are presently in the range of 18% to 62% in various

states25. The losses are less than 20% in Goa and Tamil Nadu while these losses

are within the range of 20 to 30% in Andhra Pradesh, Gujarat, West Bengal,

Himachal Pradesh, Maharashtra, Tripura, Punjab, and Uttaranchal. Further, there

are states including Haryana where AT&C losses are in the range of 30 to 40% i.e.

Karnataka, Kerala, Assam, Rajasthan, Meghalaya, Mizoram, and Chhattisgarh. The

losses are more than 40% in Delhi, Uttar Pradesh, Bihar, Jharkhand, Madhya

Pradesh, Arunachal Pradesh, Manipur, and Nagaland. In India, commercial losses

are primarily due to improper energy accounting and billing processes, faulty

metering, under-billing, theft and pilferage of energy and lack of accountability

23 The information is taken from pg. 1 of a case study entitled ‘Case of Reforms in the Indian PowerDistribution Sector: A Move towards Eradicating Energy Poverty’ which is retrieved fromhttp://www.worldenergy.org/documents/congresspapers/413.pdf on dated 10th November, 2012.24 The source of this information is: International Energy Agency (IEA Statistics © OECD/IEA,http://www.iea.org/stats/index.asp), Energy Statistics and Balances of Non-OECD Countries andEnergy Statistics of OECD Countries, and United Nations, Energy Statistics Yearbook.25 The data is taken from Pg. 4 of case study entitled ‘Case of Reforms in the Indian PowerDistribution Sector: A Move towards Eradicating Energy Poverty’ is retrieved fromhttp://www.worldenergy.org/documents/congresspapers/413.pdf on dated 10th November, 2012.

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within the organization26. The distribution losses are also due to low level of

collection efficiency which is further attributable to lack of employees

accountability, inadequate collection facilities, limited usage of advanced systems

and technology (e.g. payment through ECS, credit/debit cards, special centres like

e-Seva centres), billing errors, political/administrative interferences etc. The Indian

power utilities do not have proper load monitoring and control mechanisms (e.g.

Distribution Control Centre, telecommunications etc.), which results in to

haphazard control of the demand and often leads to loss of revenue and

inconvenience to the consumers27.

Through technology gains, improved public policy, and market reforms, the

electricity sector can become cleaner and more affordable. However, the shortage

of generation capacity together with poor transmission and distribution systems

may result in low access and supply interruptions causing discomfort in the life of

citizens. It is required to reform power sector involving unbundling of vertically

integrated utilities into generation, transmission, and distribution companies,

reduction of system losses, setting up of independent regulators to regulate price

and quality of service involving the private sector, moving towards competitive

markets, ensuring operational improvements and financial solvency of power

sector entities, and adopting power tariff reform -- aligning rates with cost of

electricity supply. The reform processes are continuously making targets to

improve the efficiencies by encouraging competition and regulating power utilities

under an independent and transparent regulatory regime. In India, the Central

26 The information is taken from Pg. 6 of case study entitled ‘Case of Reforms in the Indian PowerDistribution Sector: A Move towards Eradicating Energy Poverty’ is retrieved fromhttp://www.worldenergy.org/documents/congresspapers/413.pdf on dated 10th November, 2012.27 The information is taken from Pg. 7 of case study entitled ‘Case of Reforms in the Indian PowerDistribution Sector: A Move towards Eradicating Energy Poverty’ is retrieved fromhttp://www.worldenergy.org/documents/congresspapers/413.pdf on dated 10th November, 2012.

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Electricity Regulatory Commission (CERC) and State Electricity Regulatory

Commissions (SERCs) are regulating the tariff orders and also the operational as

well as managerial functions of the entire system. The progress of APDRP and R-

APDRP has remained less than the expectations of central government, which

indicates that there are hidden inefficiencies in the system. The Electricity Laws

(Amendment) Act was enacted in 1998 to encourage the private sector players for

their active participation in improving the availability of electricity supply; since

then the power utilities have become one of the largest regulated industries in

India.

The reforms in Haryana power sector are continuously improving the

availability of electricity but the increasing demand of electricity is outpacing the

supply. As per the present mechanism, the issues related to generation,

transmission, and distribution functions are debated in the hearings of State

Electricity Regulation Commissions (SERCs) such as recovery of abandoned costs,

divestiture of transmission assets, renewable energy incentives, electricity

efficiency investments, reliability and the timing of retail competition, tariff

fixation for electricity services etc. The agricultural and domestic consumers are

charged with subsidized tariff rates while the commercial and industrial consumers

are charged with higher tariff rates. There is acute requirement to improve the

power supply position which is possible by improving efficiencies in the system.

The Economic Survey of Haryana (2011-12) has stated that Haryana is incapable

to use wind and sun light for power generation due to its geographical status. The

utilities which are presently facing pressure from Government’s side to keep

expenditures under control so that affordable tariffs may be imposed upon the

consumers; it can become technically and financially sound after improving the

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efficiencies. It is required to improve the efficiencies in electricity supply and

transmission functions so that AT&C losses can be controlled and customer

satisfaction from electricity services can be improved. Bihar, a state with largest

T&D losses in India i.e. over 43 percent of the installed capacity; is now planning

to introduce smart grids28. In Haryana, the use of smart metering, information

technology, and advanced tools can support the growing state and can help

consumers with greater choice and opportunity to make informed decisions about

their electricity uses. After using smart (IT-enabled) activities, the fault location

can be detected automatically and there may be no need on part of consumers to

notify distribution utilities for faster maintenance. The smart activities, which can

be used are explained in a report29, includes GIS-based consumer indexing and

electrical network mapping, Automated Meter Reading (AMR), Energy Audit and

Accounting, Load Flow Analysis, Meter Data Logging System, interactive voice

response system (IVRS)-based consumer call centre, Spot billing machines,

Prepaid Metering System, and Any-time payment (ATP) machines. Further, the

privatization of utilities can also be considered for improving the efficiencies. In

Delhi, the private power firms are making progress. India's two largest private

power companies - Tata Power and Reliance Energy - have been awarded

management control of supplying electricity to Delhi, working in partnership with

state-run organisations30. Tata Power has cut transmission losses in its patch from

over 50% of the power supplied to little more than 30%.The company has

28 This information is taken from the news appeared in Business Standard entitled “Smart grids forBihar” dated 1st October 2012.29 The information is taken from Pg. 10 of case study entitled ‘Case of Reforms in the Indian PowerDistribution Sector: A Move towards Eradicating Energy Poverty’ is retrieved fromhttp://www.worldenergy.org/documents/congresspapers/413.pdf on dated 10th November, 2012.30 The information is taken from Pg. 14 of case study entitled ‘Case of Reforms in the Indian PowerDistribution Sector: A Move towards Eradicating Energy Poverty’ is retrieved fromhttp://www.worldenergy.org/documents/congresspapers/413.pdf on dated 10th November, 2012.

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launched several thousand civil legal cases against people it suspects of abusing

the system in Delhi and has also undertaken an education campaign to convince

consumers of the merits of paying for power. The company rewarded the people

informing about power theft in their neighborhoods and the company backed by

police conducted raids in areas where electricity theft is supposed to be on a large

scale. Finally, it is evident that the efficiencies improvement is a big concern and

there is wide scope for improving efficiencies in electricity supply and

transmission system depends upon the economic, geographical, and social status of

countries and their states.