Project at a glance

• Power distribution companies are chronically loss-making and often cannot collect revenue on the energy they supply due to agency problems and theft
• Revenue Enhancement Scheme was launched to minimize revenue losses and improve service quality through incentivizing employees who are involved in revenue activities
• The scheme, which tests the effectiveness of performance-based incentives, has covered more than 660 employees from 24 electricity supply subdivisions, serving 40 million people

Why this study

Non-payment for electricity is holding back a global push to extend electricity access to 1.2 billion people off the grid. Countries around the world, including India, Ghana, Myanmar, and Uganda, are working towards increasing the rate of electrification with the goal of powering future economic growth. The success of these efforts will depend on whether the power distribution companies, typically state-run power utilities, are willing and able to pay for energy for the poor people they connect.

Unfortunately, distribution companies across the developing world are chronically loss-making and often cannot collect revenue on the energy they supply, due to agency problems and theft. Consequently, they provide rationed and erratic supply, which undercuts the economic value of power.

Bihar State Power Holding Company Limited (BSPHCL), North Bihar Power Distribution Company Limited (NBPDCL), and South Bihar Power Distribution Company Limited (SBPDCL), in collaboration with J-PAL South Asia, Tata Centre for Development, and researchers from Energy Policy Institute of Chicago-India team (EPIC-India), launched a Revenue Enhancement Scheme in August 1, 2017, aimed primarily at minimizing revenue losses and improving service quality through incentivizing employees who are involved in revenue activities.

Till July 2018, the scheme covered more than 660 employees from 24 electricity supply subdivisions, serving 40 million people. The evaluation has been further expanded to include about 1,800 power distribution company (discom) employees. Under this project, researchers are measuring changes in revenue, customer-employee collusion, customer service, and electricity supply quality as outcomes.

Approach

This study is a large-scale field experiment providing performance-based incentive pay to the employees responsible for revenue collection for the utility. Incentive pay addresses information asymmetry between the utility and its employees. Neglect or corruption in collections has been a large source of losses for Indian discoms. Customers are often not metered or billed, are under-metered or under-billed, do not pay bills, or outright steal electricity.

These different sources of loss are largely indistinguishable to the company’s managers. Discom employees may be able to earn more by colluding with informal customers and taking side-payments from them than by formalizing them and directing their payments to the company. Giving a share of the revenue, which is collected over the targets assigned for each employee, may convince them to opt for formalization.

Through this field experiment, the project tests effectiveness of performance-based incentives with three cross-cutting treatments that vary: incentive strength, frequency of target revision, and the timing of disbursement of financial rewards.

For this project, the Energy Policy Institute gratefully acknowledges generous research support provided by the Tata Centre for Development (TCD) at UChicago.