The great power robbery

A study by a Pune-based organisation exposes the culpability of industrial units availing themselves of high-tension and extra high-tension supply in power theft, which causes heavy revenue losses to State Electricity Boards.

OVER the past decade, we have been conditioned to believe that large-scale power thefts occur in low-tension (LT) supply to rural areas and to domestic consumers in urban areas. Now comes a study done by the Pune-based Prayas Energy Group, which suggests that large-scale power theft is rampant among industrial consumers who avail themselves of high tension (HT) and extra high-tension (EHT) supply. The study suggests that the ambitious and infeasible objective of 100 per cent metering should be deferred in favour of a more pragmatic, cost-effective and manageable solution, namely, metering HT/EHT consumers immediately.

A decade of power sector reforms were structured on the premise that agricultural subsidies and irrational power tariffs were to blame for the ills of the sector. Accordingly, the prescription in State after State addressed precisely these two 'problem' areas. A series of measures such as unbundling, corporatisation, establishment of autonomous regulatory commissions, transparent tariff-setting, periodic tariff revisions incorporating the principles of rationalisation, and even privatisation of distribution (in one State) have been accomplished. Yet, financial salvation continues to elude the State Electricity Boards (SEBs) and their successor utilities, reform or no reform. The argument that agricultural subsidies were the villain of the piece stood exposed when it was pointed out that the lack of metering made it convenient to lump thefts with agricultural supply.

As for tariffs, repeated hikes imposed on rural and domestic consumers in the name of tariff rationalisation have reached a point where further hikes are not only politically explosive, but also indefensible from an economic point of view. Average power tariffs in India are comparable to those in developed countries although the purchasing power of Indians is only a fraction of that of the latter. Clearly, further tariff hikes are untenable and further rationalisation is limited in scope.

Therefore, almost reluctantly, the spotlight is now turned on the real problem, namely, transmission and distribution (T&D) losses, a large chunk of which is nothing but plain theft of electricity. Yet, even here, policy-makers, tutored by their reform consultants, would have us believe that theft occurs only in rural areas and among urban slum-dwellers. In order to target thefts, they have been zealously advising the SEBs/utilities to undertake "Total Energy Audit" and instal 100 per cent metering - a virtual impossibility in such a vast country with several million connections.

According to the Prayas study, based on data submitted by the utilities themselves to their respective regulatory commissions, industries using HT and EHT lines are involved in large-scale thefts. Even a small percentage of losses in HT/EHT supply can mean a substantial loss of revenue to the utilities, owing to the large quantum of power consumed by industry. Prayas studied four States - Maharashtra, Andhra Pradesh, Haryana and Karnataka - and came up with the suggestion that the starting point for the energy audit should be HT and EHT consumers, rather than the LT consumers in rural areas. The scope of such an exercise would be manageable, its investment requirement limited, and results more than commensurate with the efforts and investments. Based on the findings of the study, Prayas goes to the extent of saying that the regulators should refuse to consider tariff increase proposals if the utility does not conduct a 100 per cent energy audit of HT industrial consumers within the time-frame set by them.

Prior to the reforms, the utilities routinely understated their T&D losses. The opaqueness of the earlier system allowed them to conceal inefficiency by under-reporting losses. But tariff-setting by regulators made it worthwhile for the utilities not only not to conceal the level of losses but even to inflate it. This is because the higher the loss level accepted by the regulator, the higher the tariff that would be allowed. Therefore, even prior to the establishment of the regulatory commission, many utilities revised their T&D loss figures upwards. The regulators then based their tariff orders on these revised loss estimates and set targets for loss reduction, but without the attendant penalties for non-compliance. Instead of complying with the loss reduction targets, the utilities then went back to the commission with tariff proposals showing further revised estimates of T&D losses and even sought waiver or scaling down of loss reduction targets.

The point to note here is that none of the loss estimates is based on actual data. In fact, in the absence of metering, it is impossible to ascertain the exact quantum of losses. Utilities can go on revising their loss figures and the regulator will have no way of ascertaining their veracity. Not that all the regulators have been overzealous in scrutinising the claims of the utilities. Also - and this is crucial - it is really not in the interest of the utilities to put in place a metering mechanism for obtaining accurate data on losses. That would not only bind them to reduction targets but also deprive them of any rents accruing from an overstatement of losses.

The Prayas study found that the revision in HT and EHT losses was rather steep in the four utilities surveyed. It also found serious lacunae in the computation of losses; it gives its own estimate of what the losses should have been. The accompanying bar diagram shows the historical losses reported by the utility, the revision proposed in the first tariff proposal of the utility, the loss level allowed by the regulator and the subsequent revision by the utility. HT/EHT losses as per the latest revision of the utilities have ranged from 6.7 per cent in Maharashtra to 8.7 per cent in Andhra Pradesh and a staggering 15.17 per cent (transmission losses) in Karnataka. Not only are these levels high, but they indicate substantial revenue losses. All it needs to ascertain the exact level of losses is installation of a few thousand meters - according to Prayas 460 meters in Andhra Pradesh, 300 in Haryana and about 10,000 in Maharashtra. But the benefits accruing from this would be in several hundred crores of rupees.

Prayas further states that not all losses in HT/EHT feeders are technical in nature. The study demonstrates how fallacious load factor assumptions and flawed calculations have enabled the utilities to portray commercial losses as technical losses and how the regulatory commissions have accepted these figures. It also points out how in Maharashtra, the 220 Express Feeders that were studied by the SEB show consistently problematic readings implying substantial leakages at the HT level. Madhya Pradesh, in its tariff application for 2001-02, has mentioned 15.3 per cent technical losses, based on a study conducted by independent consultants. The Prayas study found that the Andhra Pradesh utility had inflated EHT loss figures for 2001-02 by 3.8 per cent owing to flawed calculations that entailed a revenue loss of Rs.600 crores a year.

The HT and EHT categories consumption accounts for 20 to 30 per cent of the total sales and 50 to 60 per cent of the total revenue in most States. Therefore, even a small commercial loss in the HT and EHT section would entail a huge loss of revenue to the utility. Engineers conducting energy audit in select circles have found instances of industries using magnets and, in one case, even an electronic remote control device, to tamper with meters. Vigilance squads set up to detect such thefts have proved to be utterly ineffective and have underscored the need for other measures that would bring accountability. Therefore, the Prayas study suggests that the energy audit aim to establish the energy balance right from the points of energy generation or power purchase to points where energy is transformed to LT level. This is because, measuring energy transformed to LT is difficult and would require sizable investments. For instance, in Maharashtra, Prayas found that it would require the metering of 1,80,000 distribution transformers involving an investment of Rs.150 crores, and constant monitoring, maintenance, reading and data analysis in a routine and consistent manner, something that should be taken up as a long-term solution. In the immediate term, what is feasible is to restrict the energy audit to up to the 33 kV level. This, it believes, can be done in a year's time and at a cost that might not be more than 1 per cent of the revenue from HT consumers. It would also facilitate reforms involving unbundling of utilities or even the implementation of concepts such as profit centres in existing SEBs.

The Accelerated Power Develo-pment Programme launched by the Ministry of Power involves an outlay of Rs.1,500 crores (which is sought to be enhanced substantially), out of which a large chunk would be ploughed into strengthening transmission substations and distribution networks. It envisages 100 per cent energy audit. The Ministry would instead do well to heed the signals and initiate a metering drive for HT and EHT consumers, at least to begin with. Like politics and diplomacy, power reforms are also about the art of the possible rather than the desirable.