Q. What are Discoms ?
A. Discom stands for ‘Distribution Company’. Discoms are the companies that are responsible for the distribution the electricity to the consumers. These do not produce electricity, they buy the electricity from the producers and then sell it to consumers.
Q. What are important role played by DisComs?
- Distribution Companies (DisComs) are the utilities that typically buy power from generators and retail these to consumers.
- For all of India’s global leadership for growth of renewable energy, or ambitions of smart energy, the buck stops with the DisComs.
- The days of scarcity of power are over.
- The physical supply situation has mostly improved.
- But the financial picture has not brightened much.
Q. What are the stats on their liabilities?
- ₹90,000 crore (later upgraded to ₹1,25,000 crore) was earmarked for DisComs in ₹20-lakh crore package announced in the wake of Covid-19’s economic shock.
- The Power Finance Corporation (PFC)’s Report on Utility Workings for 2018-19 showed dues to generators were ₹2,27,000 crore, and this is well before COVID-19.
- DisComs have delayed their payments upstream (not just to generators but others as well) — in essence, treating payables like an informal loan.
Q. Why do DisComs not able to pay on time?
- Ideally, DisComs should not incur losses as they enjoy a regulated rate of return.
- While AT&C losses can explain part of any gap. Major reasons are as discussed below:
1) Regulatory issue and cash-flow gap due to it
- The first problem starts at the regulatory level where even if DisComs performed as targeted, across India, they would face a considerable cash flow gap.
- This cash flow gap was ₹60,000-plus crore in FY18-19 compared to their then annual cost structure of ₹7.23-lakh crore.
2) Payabeles issue: Due from consumers, state and regulatory gap
- These dues are of three types.
- First, regulators themselves have failed to fix cost-reflective tariffs thus creating Regulatory Assets,which are to be recovered through future tariff hikes.
- Second, about a seventh of DisCom cost structures is meant to be covered through explicit subsidies by State governments.
- Third, consumers owed DisComs over ₹1.8 lakh crore in FY 2018-19, booked as trade receivables.
- State governments are the biggest defaulters, responsible for an estimated a third of trade receivables, besides not paying subsidies in full or on time.
3) Threats posed by renewable energy
- The rise of renewable energy means that premium customers will leave the system partly first by reducing their daytime usage.
- And as battery technologies mature, their dependence on DisComs may wane entirely.
- Even without batteries, regulations permitting, they may want to find third party suppliers under competitive models.
Q. What are Impacts of Covid pandemic on Discoms?
- COVID-19 has completely shattered incoming cash flows to utilities.
- The revenue implications were far worse since the lockdown disproportionately impacted revenues from so-termed paying customers, commercial and industrial segments.