Electricity distribution companies, or DISCOMS, are crucial players in the Indian power sector. These companies are responsible for supplying electricity to end consumers, including households, businesses, and industries. However, the financial health of DISCOMS has been a cause for concern in recent years. Many DISCOMS are facing losses and struggling to cover their costs, which has implications for the stability of the power sector as a whole. In this article, we will explore the cost and revenue structure of DISCOMS in different states of India, and why many DISCOMS are facing losses.

Cost Structure of DISCOMS:

The cost structure of DISCOMS in India can vary depending on factors such as the state they operate in, the quality of infrastructure, and the pricing policies they follow. According to a report by the Power Finance Corporation (PFC), the cost structure of DISCOMS in 2018-19 was as follows:

1. Cost of Power: This is the biggest expense for DISCOMS, accounting for 77% of their total costs. The cost of power includes the cost of purchasing electricity from generators, as well as transmission and distribution charges.
2. Employee Cost: This includes the salaries, pensions, and other benefits of DISCOMS employees. Employee costs accounted for 8% of total DISCOMS costs in 2018-19.
3. Interest Cost: DISCOMS often take loans to finance their operations, and interest payments on these loans are a significant expense. In 2018-19, interest costs accounted for 7% of total DISCOMS costs.
4. Depreciation: This is the reduction in the value of assets over time due to wear and tear or obsolescence. Depreciation accounted for 3% of total DISCOMS costs in 2018-19.
5. Other Costs: This includes expenses such as rent, maintenance, and repairs. Other costs accounted for 5% of total DISCOMS costs in 2018-19.

Revenue Structure of DISCOMS:

The revenue structure of DISCOMS in India also varies depending on the state and pricing policies. According to the PFC report, the revenue structure of DISCOMS in 2018-19 was as follows:

1. Revenue from Operations: This includes revenue from the sale of electricity to end consumers. In 2018-19, revenue from operations accounted for 74% of total DISCOMS revenue.
2. Tariff Subsidy Booked: DISCOMS often receive subsidies from the government to provide electricity at lower prices to certain categories of consumers, such as farmers or low-income households. Tariff subsidy booked accounted for 17% of total DISCOMS revenue in 2018-19.
3. Regulatory Income: DISCOMS may receive income from regulators for meeting certain targets, such as reducing losses or improving the quality of supply. Regulatory income accounted for 1% of total DISCOMS revenue in 2018-19.
4. Revenue Grant UDAY: Under the Ujwal DISCOM Assurance Yojana (UDAY), the government provided grants to DISCOMS to help them cover their losses and improve their financial health. Revenue grant UDAY accounted for 3% of total DISCOMS revenue in 2018-19.
5. Others: This includes revenue from sources such as interest on deposits or other income. Others accounted for 5% of total DISCOMS revenue in 2018-19.

Why DISCOMS have losses:

Despite the significant revenue streams, many DISCOMS are still facing losses. One of the key reasons for this is that the cost of power is often higher than the price at which DISCOMS can sell electricity to consumers.

Table 1: Costs and revenue of distribution utilities, in ₹ crore (2018-19, source: PFC)

Cost Structure:

Revenue Structure: