Performance assessment of state-owned electricity distribution utilities in India

Abstract

The Indian electricity sector is at the cusp of transition. Facilitated by continuous policy thrusts, this transition, however, has not changed much on the ground as the growth of electric distribution utilities is still marred by conventional bottlenecks such as bad debts, shortage of funds, and a poor balance sheet. In this context, this study evaluated the efficiency of a selected set of 45 electricity distribution utilities in 21 states in India during the period 2018–19, using a two-stage analysis. First, an input-oriented data envelopment model with constant returns to scale was employed. Second, a regression analysis was performed to test whether efficiency scores influence such utilities’ financial viability, represented by the gap between average cost of supply and average revenue realized. The results indicated that there is a need to improve efficiency, as most of these utilities are technically inefficient. The analysis showed that a total cost-saving potential of around 2,387 billion Indian rupees could be achieved through efficiency improvements alone. Regression analysis highlighted that variables other than the efficiency of utilities such as aggregate technical and commercial loss and agricultural consumption as a percentage of total consumption contribute positively to utilities’ financial strength; hence, they should be prioritized by policymakers.