July 2023 Governance and Culture: A Utility’s Adoption of Technology to Improve its Performance and Efficiency The case of Tata Power Delhi Distribution Limited Contents Abbreviations and acronyms ................................................................................................................. 3 Executive Summary ................................................................................................................................ 5 Case Study .............................................................................................................................................. 7 Context and problems to address ........................................................................................................... 7 Tata Power DDL’s turnaround plan......................................................................................................... 7 Results of the turnaround plan ............................................................................................................. 12 Key takeaways and lessons learned...................................................................................................... 13 Abbreviations and acronyms ADR Automated demand response AMR Automated meter reading ARR Annual Revenue Required ASAI Average Service Availability Index AT&C Aggregate technical and commercial BESS Battery-based energy storage system BRPL BSES Rajdhani Power Limited BYPL BSES Yamuna Power Limited CAPEX Capital expenditures Crore Ten million DERC Delhi Electricity Regulatory Commission DISCOM Distribution company DVB Delhi Vidyut Board EBITDA Earnings before interest, taxes, depreciation, and amortization EV Electric vehicle ERP Enterprise resource planning FY Fiscal year GIS Geographical information system GNCTD Government of the National Capital Territory of Delhi GSAS Grid substation automation system IVRS Integrated voice response system KPI Key performance indicator kV Kilovolt MV Megavolt MVA Megavolt ampere O&M Operations and maintenance OMS Outage management system PPP Public-private partnership Rs Indian rupees RRR Run, repair, and replace SAMBANDH Hindi for relationship SAP IS-U SAP Industry-specific Solution for the Utilities Industry SLA Service level agreement SCADA Supervisory control and data acquisition SAIFI System Average Interruption Frequency Index SAIDI System Average Interruption Duration Index TPDDL Tata Power Delhi Distribution Limited Tata Power DDL Tata Power Delhi Distribution Limited Executive Summary In 2002, following an elaborate privatization exercise, Tata Power Delhi Distribution Limited (Tata Power DDL) took over electricity service delivery in parts of New Delhi, India’s capital city. To cut losses by 35 percent over the coming five years and overcome several other challenges inherited from its predecessor, the Delhi Vidyut Board (DVB), the new utility needed to significantly improve operations. To meet the commitments in its winning bid, Tata Power DDL designed and executed a turnaround plan that focused on strengthening the distribution network and adopting technologies that would modernize grid management, asset management, and functions such as metering and billing. In introducing new technologies, the utility’s approach was systematic—before deploying technologies on a large scale, they were piloted in phases in order to determine whether or not the investment needed would be cost-effective, and could be recovered through tariffs. If possible, research and piloting was carried out with funding from multilateral and other donors. Also, when relevant, software deployment was preceded by the re-engineering of business processes to understand which modules or functionalities would be necessary, and after the software was deployed, the provider conducted training for the utility’s staff. In addition, Tata Power DDL instilled a performance-driven culture in the company by introducing a performance management system that aligned the utility’s goals with individual staff members’ performance targets and compensation. Finally, having a well-executed public-private partnership (PPP), and the oversight of an independent regulator with clear, predictable rules concerning technology investments, facilitated Tata Power DDL’s performance and profitability improvements. Within five years of taking over operations in Delhi in 2002, Tata Power DDL had exceeded its loss reduction targets, and by 2020, it had significantly improved its performance against several indicators of service quality and operational efficiency, and become a profitable and creditworthy utility. Tata Power DDL’s experience offers the following lessons for utilities, regulators, governments, and practitioners:  A well-executed PPP with favorable terms provided Tata Power DDL with the autonomy and support it needed to launch its turnaround plan and secure the buy-in of a critical stakeholder group—DVB’s employees.  Although Tata Power DDL inherited employees from DVB, the shareholder agreement gave the new utility complete control over management, and the autonomy necessary to engage constructively with DVB’s employees.  A systematic approach to human resources management and building a supportive corporate culture, enabled Tata Power DDL to align employee incentives with its organizational goals, which helped the utility to achieve its targets.  The presence of an independent regulator—the Delhi Electricity Regulatory Commission (DERC)—minimized political interference with Tata Power DDL’s decisions about tariffs. While there were public protests against tariff increases that were required to cover the utility’s rising costs (primarily the cost of purchasing power), the regulatory treatment of these costs has so far protected the utility’s financial position.  Clear and predictable rules on regulatory treatment of Tata Power DDL’s investments in new technologies, plus the utility’s approach to systematically piloting technologies before deploying them, enabled its ambitious application of new technologies. Also, collaboration with multilateral and other donors in conducting research and pilots helped Tata Power DDL to demonstrate the net benefits of technologies to the DERC, and get the regulator’s approval for large-scale deployment.  Business process re-engineering and capacity building have both played critical roles in ensuring that Tata Power DDL’s technology initiatives delivered the expected results.  The substantial reduction of power system losses was achieved through concerted collaboration between Tata Power DDL and the Delhi state government. Along with reducing its losses by upgrading its distribution system assets; and adopting technologies to centralize grid management, metering, and billing; the utility implemented internal processes to stop employees from facilitating power theft. The state government helped with the latter by promptly policing and punishing of power theft in Delhi. Case Study Context and problems to address When Tata Power DDL took over service delivery in parts of New Delhi following privatization of the city’s power system, to meet its targets and overcome the challenges inherited from its predecessor, the utility had to overhaul the system’s operations so that within five years it could cut its aggregate technical and commercial (AT&C) losses by 35 percent. In 2002, Tata Power took over one of the three state-owned power distribution utilities that were serving customers in Delhi, India’s capital, and named the new company Tata Power Delhi Distribution Limited (Tata Power DDL). This was the culmination of power sector reforms in the capital that involved unbundling the vertically integrated state utility, Delhi Vidyut Board (DVB), and awarding private partners with a 51 percent stake in each of DVB’s three distribution utilities. Tata Power won the bid for the utility serving North-North West Delhi because it promised to achieve impressive targets in reducing annual AT&C losses over five years (from 2002 to 2007). When it began operating in 2002, Tata Power DDL had to address several problems, which it inherited from DVB:  The utility was in poor financial health, with losses totaling $148 million;  Service quality was poor and unreliable due to long power cuts—its System Average Interruption Duration Index (SAIDI) was 110 hours, and its System Average Interruption Frequency Index (SAIFI) was 55.  Load shedding of 8 to 12 hours per day was common.  Fulfilling a new connection request took an average of more than 53 days.  Operational efficiency was poor, with a billing rate of only 54 percent.  AT&C losses were 57 percent due to widespread electricity theft.  The collection rate (80 percent) was low due to high losses, billing inefficiencies, and the lack of payment options.  The system’s physical infrastructure was dilapidated and outdated due to inadequate capital spending, and this made the utility’s assets unreliable, which caused a transformer failure rate of 11 percent. To sum up, in order to meet the substantial loss reduction target of 35 percent in its winning bid, Tata Power DDL had to overcome a number of problems. Tata Power DDL’s turnaround plan Tata Power DDL executed a turnaround plan that focused on strengthening the distribution system, deploying technologies to modernize several utility functions, and re-engineering business processes related to customer service and commercial operations. Tata Power DDL’s strategic adoption of new technologies was a key part of the utility’s reform program that contributed to marked improvements in several key performance indicators (KPIs), which are depicted in Figure 1. Figure 1: Tata Power DDL’s Technology Adoption Timeline from 2005 to 2020 Tata Power DDL’s adoption of new technologies took place in two phases. In Phase 1 from 2005 to 2013, the utility implemented the following:  An automated meter reading system (AMR) for customers who, on a monthly basis, were consuming 11 kW or more;  A geographical information system (GIS) that geotagged the assets in the utility’s distribution network;  Grid substation automation systems (GSAS) that enabled unmanned operation of the 66/11 and 33/11 kV grids;  A fiber communication network to support all of the enterprise systems and communications between the supervisory control and data acquisition (SCADA) system and the grid stations;  A SCADA system to centrally manage 35 grid stations;  A comprehensive customer relationship management system that uses a SAP IS-U (SAP’s industry-specific solution for the utilities industry) to seamlessly integrate the utility’s commercial functions with its technical operations (projects, procurement, and finance) and with its customer service applications (new connections, billing, and customer interface); and An outage management system that is linked to technical and customer interface applications to enable credible fault monitoring, recording the SAIDI and SAIFI, and promptly addressing customers’ complaints. Phase 2 of Tata Power DDL’s adoption of new technologies began in 2016, and comprised research and piloting automated demand response (ADR) and advanced metering infrastructure (AMI) programs, and following the latter, installing radio frequency technology, and meter data management systems. In 2016, Tata Power DDL also adopted a tool that automates power scheduling; and forecasts the load, supply, and price of power. Table 1: Tata Power DDL’s Technology Adoption Timeline from 2005 to 2019 Years Technology Notes on implementation, uses, and benefits 2005 Automated meter  Implemented for customers using >11 kW per month reading (AMR)  Facilitated remote billing and helped eliminate manual meter reading and billing  Improved billing accuracy 2005 GIS (implemented in  Facilitated the geotagging of assets over the entire partnership with distribution network General Electric)  Enabled the interface with other business processes such as network planning, the enterprise resource planning (ERP) system, billing, and asset management  Provided a clear picture of the company’s assets and customers  Helped ensure regular metering, billing, monitoring, and accounting 2006 Grid substation  Allowed unmanned operation of all 66/11 and 33/11 kV automation systems grids in the service area (GSAS)  Equipped substations with intelligent devices to make control, monitoring, and protection signals available at the SCADA system’s master control center 2006 Fiber network  Supported all enterprise systems as well as communication infrastructure (in between the grid stations and the SCADA system partnership with  Improved the reliability of system operations Tata Telecom) 2007 SCADA (in  Enabled central monitoring and control of real-time power partnership with system dynamics for 35 grid stations Siemens)  Siemens developed the capacity of TATA Power DDL staff to use the SCADA technology 2011 SAP IS-U module for  Integrated commercial functions with that of finance, customer procurement, and projects across the utility. This was relationship achieved by seamlessly integrating the SAP-ISU module management with other applications such as the outage management system (OMS), GIS, AMR, integrated voice response system (IVRS), and payment gateways.  Enabled complete automation of sales accounting and revenue collection  SAP India Limited developed the capacity of staff to operate the system 2013 Outage management  Provided a credible system for fault monitoring and the system (OMS) recording of reliability indicators such as the SAIDI and SAIFI  Linked platforms such as those for the GIS, SCADA, and customer relationship management system, with zonal offices and call centers. This helped the utility to predict, group, and prioritize customer complaints, which resulted in greater responsiveness and faster resolution of these complaints. Years Technology Notes on implementation, uses, and benefits 2016, Advanced metering  Assessed the accuracy of information on consumption 2020 infrastructure (AMI) patterns and load control points throughout the network in real-time, which was part of a pilot for rolling out AMI in partnership with United States’ company Duke Energy.  Completed the design, supply, testing, and installation of radio frequency technology and a meter data management system in partnership, respectively, with Landis+Gyr and Siemens  Installed ~200,000 smart meters by March 2020 2016 Automated demand  Piloted an ADR program in partnership with Honeywell, response (ADR) which covered 161 commercial and industrial customers with a load >100 kW  The program aims to reduce peak demand during grid congestion by load shedding of the non-critical loads of participating customers  Conducted 17 demand response events of an hour each. During peak periods, curtailing of ~7.2 mega volt amperes (MVAs) was achieved out of the connected load of 11.5 MW. 2016 Load forecasting and  Adopted a tool to automate scheduling and workflow; power purchase forecast load, supply, and price; and conduct optimized optimization tool scenario planning.  Enables accurate projection of short- and long-term energy requirements by identifying various supply sources, as well as setting up pricing agreements with suppliers, and processing invoices for the procured power 2019 Battery-based  Installed a 10 MW grid-scale BESS in a substation in energy storage partnership with AES Corporation and Mitsubishi system (BESS)  Enabled grid stabilization and load management, and enhanced system flexibility and reliability Since 2019, Tata Power DDL has focused on new and emerging technologies for renewable energy, energy storage, energy efficiency, and electric vehicles (EVs). In this phase, Tata Power DDL has installed a 10 MW grid-scale, battery-based energy storage system (BESS); developed 17 solar projects that generate 1.79 MW; and installed public EV charging stations for two-wheeled vehicles (two), four-wheeled vehicles (five), and three-wheeled rickshaws (100). These technology initiatives were accompanied by the re-engineering of processes related to commercial operations, asset management, and customer service. Re-engineering and standardizing processes to enhance customer satisfaction have been an important focus for Tata Power DDL. The goal of this process, which was to streamline decision- making and instill a customer-centric attitude in the workforce, involved assessing the revenue management cycle to identify typical commercial functions, and how these impact customers’ experience. Based on this assessment, which revealed that the grievance redressal process was cumbersome and time consuming, the utility’s commercial functions were re-engineered into nine closely interlinked modules. As Table 3 shows, each module had a dedicated group of employees, and their performance was monitored based on a service level agreement (SLA). These SLAs, which include the parameters and targets stipulated by the regulator and the utility’s management, were defined by management in consultation with the leaders of the nine groups. The SLAs were designed to ensure timely, high quality delivery of services, and they included parameters such as the minimum time for carrying out a new service connection, the minimum waiting time for customers when they call a customer-care center, and so on. To cultivate employees’ commitment to achieving customers’ satisfaction, the indicators and targets in the SLAs were linked to each employee’s performance assessment and compensation. Table 3: Nine Modules Developed through Re-engineering Commercial Operations’ Functions Business Process Re-engineering Key responsibilities Module/Group Customer care  Establish multiple avenues for registering complaints  Create a single-window solution for customer grievances across all touch points Connection management  Streamline the new connection process to eliminate third-party service providers  Establish additional facilities, including collection of documents at customers’ residences Meter management  Install, replace, and test meters  Enable the adoption of advanced metering technologies Meter reading  Ensure accurate meter reading and timely distribution of bills  Audit meter readings through shadow readings, and rotate meter readers and agencies to prevent them from conniving with people stealing power Revenue billing  Carry out billing, correcting bills, and ensuring the overall quality of bills  Ensure logic-based quality checks of bills before printing them to minimize efforts required to correct them Revenue collection  Create multiple avenues for bill payment such as any- time payment machines, drop boxes, and online payment media (including websites) Revenue recovery  Recover outstanding amounts through initiatives such as "red bill” disconnection notices, an automated list of defaulters, and disconnection notices Revenue discipline  Responsible for legal and enforcement sub-modules based on recommendations of the meter management group and the meter reading group  Aggregate inputs about thefts and focus on the high- value theft cases and timely compliance Corporate commercial  Monitor issues related to regulatory compliance management  Carry out activities related to policy advocacy, benchmarking, revenue protection, and data analysis In 2007, these nine modules were merged into a single window through integrating its in-house customer relationship management software program (SAMBANDH), which enabled the end-to-end tracking of customer requests and complaints. Mechanisms were built into SAMBANDH to ensure that the promises made to customers were met. To ensure better integration of commercial processes with finance, procurement, and project functions, Tata Power DDL recently migrated from SAMBANDH to SAP’s Industry-specific Solution for the Utilities Industry (SAP IS-U). With regard to asset management, a run, repair, and replace (RRR) policy was introduced to ensure faster fault restoration and continuity of supply. Tata Power DDL assessed all of its network assets and categorized them according to one of three categories—run, repair, or replace. Assets categorized as “run”, comprised equipment in good condition that could remain in service without any major modifications. Equipment categorized as “repair”, comprised equipment that could remain in service following minor repairs or renovation. Assets categorized as “replace” were in poor condition and identified for replacement under a “CAPEX Plan”. As a part of the RRR policy, Tata Power DDL decentralized operations and maintenance (O&M) into zones, districts, and circles with a mobile maintenance and breakdown crew on duty 24 hours a day, seven days a week, and this has resulted in faster resolution of customer complaints. Results of the turnaround plan Within five years of taking over operations in Delhi, Tata Power DDL had exceeded its loss reduction targets. By 2020, the utility had achieved significant improvements in performance when this was measured against several indicators of service quality, operational efficiency in technical and commercial operations, and financial health. As shown in Table 4, by 2008, Tata Power DDL (abbreviated in the table as TPDDL) had exceeded the loss reduction targets it proposed in its winning bid, and it had also surpassed the other two utilities operating in Delhi (BYPL and BRPL). Table 4: Comparison of Tata Power DDL’s AT&C loss reduction performance with the other two system operators in Delhi (2002 to 2007) Note: BYPL is BSES Yamuna Power Limited, BRPL is BSES Rajdhani Power Limited, and TPDDL is Tata Power Delhi Distribution Limited. Table 5 shows Tata Power DDL’s considerable performance improvements by comparing indicators for service quality, operational efficiency (commercial and technical), financial stability, and profitability between fiscal year (FY) 2002–03 and FY 2019–20. Regarding service reliability, SAIDI decreased from 110 hours to one hour, and SAIFI decreased from 55 instances to one. Regarding responses to customer complaints about billing, the number of days it took staff to respond declined from 45 days to two days. As Table 5 shows, the time taken to replace faulty meters, connect new customers, and restore faults also declined significantly. By 2020, overhauling the systems used to manage commercial operations, and re-engineering business processes to prioritize customer satisfaction improved Tata Power DDL’s commercial efficiency. For example, the collection rate rose by 10 percent, the billing rate rose by over 70 percent, and more than 3,700 new payment avenues were added to enable customers to pay their bills more easily. Between 2002 and 2020, Tata Power DDL’s customer base grew by one million. Improvements in Tata Power DDL’s overall efficiency and service quality were reflected in the utility’s financial performance, which by 2020, was profitable and creditworthy. Table 5: Significant improvements in performance for indicators of service quality, operational efficiency, and financial stability and profitability (2002 to 2020) Indicator 2002–03 2019–20 Service quality SAIDI (hours) 110 1.29 SAIFI (number) 55 1.3 Fault restoration time (hours) 11 Less than 1 Time taken to replace faulty meters (days) 25 Less than 3 Time taken to complete a new connection 51.8 2 request (days) Customer satisfaction index n/a 94% Time taken to resolve billing complaints 45 2 (days) Operational efficiency (technical and commercial operations) Payment collection avenues (number) 20 3758 Collection rate (%) 89.8 99.24 Billing rate (%) 53.73 92.82 Customer base (million) ~0.7 ~1.7 Operating cost recovery (%) 87.38 110.6 Operating cost recovery from subsidies (%) 35.4 7.17 Transformer failure rate (%) 11 0.71 Network length (circuit kilometers) 6,750 13,065 System reliability – Average Service 70 Above 99 Availability Index (ASAI) Financial stability and profitability Financial profit/(losses) ($ million) (148) 56 Debt to assets ratio (%) 51.62 24.66 Interest coverage ratio (times) (1.5) 2.87 Net profit margin (%) (29.31) 5.19 EBITDA margin (%) (14.44) 16.56 Source: See Annex 1 for references and sources of data points cited in this table. Note: EBITDA is the abbreviation for earnings before interest, taxes, depreciation and amortization. Key takeaways and lessons learned Tata Power DDL’s experience offers several valuable lessons for energy sector stakeholders, including utilities, practitioners, and regulators. A well-executed public-private partnership (PPP) with favorable terms gave Tata Power DDL the autonomy and support it needed to launch its turnaround plan and secure the buy-in of its critically important stakeholders—DVB’s employees. The PPP had several features that provide valuable lessons for other utilities/governments that are considering private sector partnerships when undertaking distribution sector reform. Winning bidders were assured of a 16 percent return on their equity. As a transitory measure, the government of Delhi provided Tata Power DDL with a subsidy of $575 million for the first five years of its operations. Over this transition period, the subsidy was disbursed in the form of a discounted power purchase price through the transmission company that procured power on behalf of Tata Power DDL. The distribution utilities created through the unbundling of DVB were allowed to raise the financing they needed to turn the operations of their utility around, as 85 percent of DVB’s liabilities remained with the state-owned holding company. The unbundling of DVB is described in the Box 1 below. Box 1: Unbundling of the state-owned, vertically integrated utility, Delhi Vidyut Board (DVB) In 2002, DVB was separated into six utilities: (i) Delhi Power Company Limited (DPCL)—the sole holding company; (ii) two generation utilities—Indraprastha Power Generation Company Limited and Pragati Power Company Limited; (iii) one transmission utility—Delhi Transco Limited (DTL); and (iv) three distribution companies (DISCOMs)—one for each of the three electrical circles in Delhi—the North and North West circle, Central and East circle, and South and West circle. Once these divisions were made, the state government invited private companies to bid on managing the operations of the three DISCOMs. The holding company (DPCL) was incorporated with the objective of creating a clean balance sheet for DVB’s successors. All of DVB’s liabilities were transferred to the holding company, and DPCL’s equity was assigned to the Government of the National Capital Territory of Delhi (GNCTD). DPCL held a 49 percent share in the three DISCOMs, which gave them a clean balance sheet and insulated them from DVB’s liabilities. The unbundled structure of Delhi’s power sector is illustrated below: Tata Power DDL inherited DVB’s employees as the state government signed an agreement that promised the employees that they would be able to continue working for the new private utilities, provide the same services, and retain their retirement benefits. This move allayed employees’ fear that they would lose their jobs, and ensured that these most critical stakeholders supported the PPP process. Although Tata Power DDL inherited DVB’s employees, the shareholder agreement gave the utility total control over its management, and provided it with the autonomy necessary to engage, constructively, with its employees. Initiatives that promoted employees’ engagement were a priority for Tata Power DDL. Senior DVB employees were given senior management positions in the new utility, and communication channels were set up to ensure that employees at all levels could approach senior management. The leadership team, including the CEO, connected with zonal managers, technicians, and engineers every week to discuss any concerns they had about their respective areas, and identify measures to reduce losses. The goal was to develop a two-way communication channel that enabled employees to speak up about how to reduce losses, but also get immediate feedback about their concerns and proposals. Also, as the majority of the employees inherited from DVB were in the final stages of their career, Tata Power DDL designed a voluntary retirement scheme. This offered employees the option of early retirement in exchange for a competitively priced pay-out. Of the 5,300 employees inherited from DVB, 1,794 chose to retire early.1 A systematic approach to human resources management and fostering a positive corporate culture enabled Tata Power DDL to align employee incentives with its organizational goals, and this helped the utility to accomplish its targets. The key performance indicators (KPIs) that were used to measure employees’ performance were standardized and uniformly applied to all employees, including those inherited from DVB. The KPIs were developed for three levels—the organization, the department, and the individual. To ensure that employees’ actions furthered the utility’s organizational goals, the KPIs and their associated targets were communicated to all staff. External reviews conducted for the utility revealed that ground-level staff were not only aware of their own job-related KPIs, but they were also aware of the KPIs of their immediate supervisor, zonal manager, department head, and managers all the way up to the CEO. As part of designing a performance management system, detailed job descriptions were developed for all staff positions, and these identified the “key responsibility areas” for each position. Building on this system, individuals’ performance was evaluated based on their key areas of responsibility, and, importantly, individuals’ performance was linked with their remuneration. A systematic approach to employees’ capacity building was also taken. Tata Power DDL set up a state-of-the art training facility that focused on building employees’ skills in four areas— management, hands-on technical skills, and safety. Training was conducted in classes and interactive workshops, and through role-plays, case studies, and hands-on practice. Additionally, Tata Power DDL organized regular employee exchange programs with other utilities such as TEPCO (in Japan), CPFL (in Brazil), and Oncor (in Texas and California in the United States). A knowledge management database called “Sanchay” was established as a repository of knowledge about the utility’s key attributes. The independent regulator, the DERC, minimized political interference on tariff decisions. While there have been public protests against the tariff increases that the utility implemented to cover its rising costs (primarily the cost of purchasing power), the regulator’s approval of these costs protected the utility’s financial position. Tata Power DDL is regulated by the DERC under a cost-plus regime, which means that the retail tariffs for a year are determined and approved in advance, based on the projected costs for the 1 The regulator did not consider the costs of this scheme when setting the tariff. The DERC decided to amortize the additional expenses of the scheme over the period of two-three years through future savings on employees’ costs. The DERC conducted a detailed cost-benefit analysis of the scheme, which was based on the expenditures and annual savings projected by Tata Power DDL. The net savings were estimated by taking into account the savings in employee expenses, along with increases for other expenses—for example, the outsourcing of meter reading and billing activities due to reduction in the number of employees. The regulator estimated the payback period for the scheme, and ensured that the savings in employee costs were passed on to consumers through lower tariffs. coming year. These approved costs are called the Annual Revenue Required (ARR). In some years, the actual costs incurred were different from those approved by the regulator. The distribution utility can generally claim some or all of these costs as part of a “true-up” process, as long as the costs were incurred prudently, and any variation in the costs occurred due to factors beyond the utility’s control. However, since the true-up process requires audited financial statements, the process could take up to two years, which means that it could create a revenue gap or shortfall for the utility. In cases where the accumulated revenue gaps are significantly high, the regulator may approve the creation of “Regulatory Assets” in order to prevent a tariff shock for consumers. In such circumstances, a portion of the total approved costs in a tariff period, along with the carrying costs (interest costs incurred in the funding of the accumulated revenue gap) can be recovered in future tariff periods. As directed by the DERC, the Regulatory Assets that are created this way must be amortized in subsequent years based on an assessment of the ARR filed by the DISCOMs for the respective years. These assets are amortized with the “assurance” that the principal amount could be recovered through the tariff. As shown in Figure 2, the regulatory assets that the DERC approved for the distribution utilities in Delhi increased from 2005 to 2019. This was mainly due to an increase in the power purchase prices.2 In an effort to reduce the mounting regulatory assets of the DISCOMs, the DERC announced a series of tariff hikes. In FY 2012–13, a 26 percent tariff hike (along with the 8 percent additional surcharge) was announced, and that was followed in FY 2013–14 by a 5 percent hike, and these tariff increases led to widespread public discontent and protests. However, the state government refused to roll back the tariff hike, and announced that the DERC had the authority to raise the tariff. 2 Until 2009, the lag of $43.5 million was not significant. However, as the power purchase cost increased in subsequent years, it became difficult for Tata Power DDL to manage the huge lag through internal accruals and profits. For example, in 2010 the approved power purchase cost was rupees (Rs) 2.63/unit ($.03) and the actual power purchase cost was Rs 3.68/unit ($.05), which was 40 percent higher than the approved cost due to an increase in the input costs of generators, as well as the purchase of bilateral power. This resulted in a huge revenue gap of Rs 1,016 Crores ($137.3 million) till the end of 2015. While the tariffs were being revised after a gap of two years, an increase in borrowing to bridge the revenue gap, which was needed to ensure the continuous operation of the power system, led to an increase in interest costs Figure 2: Growth of the cumulative regulatory assets for all of the distribution utilities in Delhi Note: BYPL is BSES Yamuna Power Limited, BRPL is BSES Rajdhani Power Limited, and TPDDL is Tata Power Delhi Distribution Limited. From an accounting perspective, these regulatory assets are treated as recognizable income in any given financial year, and they have had limited impact on the profitability of the distribution utility. Hence, despite its regulatory assets, Tata Power DDL registered a profit for three consecutive financial years—2019, 2020, and 2021.3 Clear and predictable rules on regulatory treatment of investments in technology combined well with Tata Power DDL’s approach to systematically and ambitiously piloting and deploying technology initiatives. In addition, collaborating with multilateral and other donors in conducting research and piloting new technologies helped Tata Power DDL to demonstrate the net benefits of these technologies to the regulator so it could get approval for large-scale deployment. The regulator, the DERC, provided clear direction about the requirements for getting regulatory approval for the costs of deploying new technologies, which simplified the regulatory requirements for the distribution companies, and enabled them to invest in new technologies. For approval of capital expenditure (CAPEX) for new technologies, the DERC required that the benefits achieved with the technologies exceeded their costs, and that the new technologies had minimal impact on tariffs. Given these requirements, Tata Power DDL invested considerably in researching and piloting new technologies before investing in their large-scale deployment. Whenever possible, the utility secured funding from multilateral and bilateral donors to pilot innovative, new technologies such as battery storage, demand response programs, and advanced metering infrastructure. The regulator also played a crucial role by approving deployment, in principle, following the pilots that Tata Power DDL conducted, including:  Utility-level Automated Demand Response (ADR) with smart meters for Tata Power DDL’s high-end commercial and industrial consumers (2014) • An AMI pilot for 200 consumers (2016) 3 Profits of Rs 336 Crore ($45 million), Rs 414 Crore ($55 million), and Rs 428 Crore ($57 million) were registered in FY 2019, FY 2020, and FY 2021, respectively.  A 10 MW grid-scale battery-based energy storage system (BESS) at Tata Power DDL’s substation in collaboration with AES Corporation and Mitsubishi (2019) • A smart street light management system pilot (2018) After Tata Power DDL conducts a pilot to demonstrate the benefits of a new technology, it submits a detailed proposal to the DERC for approval of the cost through tariff, and this proposal includes a cost-benefit assessment for deploying the technology. The DERC directed all of the distribution utilities in Delhi (including Tata Power DDL) to prepare a plan for adopting new technologies for metering, including smart meters, and the regulator also suggested deploying this after obtaining the necessary approvals. In addition, the DERC approved Rs 198 Crore ($26 million) for the deployment of smart meters over the period from FY 2017–18 to FY 2019–20. Business process re-engineering and capacity building played a critical role in ensuring that Tata Power DDL’s technology initiatives delivered the expected results. For example, in implementing the SAP IS-U software system for integrating commercial operations with the finance, project, and procurement functions, the utility preceded this with business process re-engineering and staff capacity building. Thus, before migrating to the SAP IS-U, Tata Power DDL thoroughly assessed the various commercial operations’ functions to identify the particular functions (called groups or modules); assigned a team to manage each group or module; designed service-level agreements with indicators and targets to monitor performance of the functions in each group; and applied these indicators and targets in the performance management system to encourage employees to have a customer-centric attitude. As part of this process, SAP India trained the groups managing each module or group, as well as the staff who would be operating the SAP IS-U system. This approach delivered good results because the measurements of performance against several indicators of customer service quality significantly improved between 2002 and 2020. The time taken to resolve billing complaints dropped by 95 percent from 45 days to two days; the time taken to restore faults in the distribution system reduced from 11 days to fewer than one day; and in 2020, a new connection request was completed within two days versus more than 50 days in 2002. Loss reduction was achieved through concerted, holistic collaboration between Tata Power DDL and the state government. The utility reduced losses by upgrading its distribution system assets; adopting technologies that centralized grid management, metering, and billing; and adopting internal processes that reduced employees’ opportunities to facilitate power thefts. The government helped with this, too, by deploying the police to catch power thieves and the court to punish them. Before privatization, DVB lost almost half of all of the electricity it purchased to theft and illegal connections. Following privatization, reducing power theft was an urgent priority for the government. As such, the private companies bidding for Delhi’s distribution network contracts specified minimum loss reduction targets for the first five years after they began operating. Bidders based their targets on the baseline data for DVB’s losses, and the successful bidders were selected according to their proposed loss reduction trajectory (which was over and above the minimum specified by the government). Most of Tata Power DDL’s investments in upgrading the distribution network were aimed at loss reduction. Over the transition period from FY 2003 to FY 2007, the utility invested $158 million in network and operational improvements of which 60 percent were focused on AT&C loss reduction and reliability improvement. Measures were also taken to change the corporate culture of connivance that aided power theft . A job rotation policy was instituted for certain functions such as meter reading, which has been crucial in reducing employees’ opportunities and willingness to help customers to steal electricity, and this, in turn, has reduced the rampant theft of electricity. Additionally, to enhance the private distribution companies’ revenue recovery, the government has instituted special courts to speed up the resolution of power theft cases to enhance revenue recovery of the privatized distribution companies (including Tata Power DDL). The government has also assigned central government security forces and the Delhi police to assist with policing power theft.