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The objective of the present study is to evaluate and analyse the performance of Indian electricity distribution utilities post the implementation of landmark Electricity Act 2003.

Stochastic frontier analysis (SFA) that incorporates exogenous influences on operational efficiency is adopted in the present study. Specifically, a stochastic frontier production function model with a technical inefficiency effects model (Battese and Coelli, 1995) is chosen as a preferred model. In this model, the function that explains the inefficiency scores is estimated in a single stage with the production technology. This avoids the problem of inconsistency which is possible in the two-stage approach.

The sample involved 52 Indian electricity distribution utilities for seven-year period from 2006 to 2013. Major findings of SFA show that Indian electricity distribution utilities post the implementation of Electricity Act (2003) had, on average, experienced efficiency improvement during the observed period. The overall mean technical effciency score is estimated as 78.5% which indicates that there exist wide scope for effciency improvement in the sector. Further, the empirical findings also indicate that publicly owned distribution utilities obtain average technical efficiencies of 71.3%, which is lower than privately owned distribution utilities, which achieve average technical efficiencies of 85.7%.

Power supply quality indicators such as SAIFI, SAIDI, CAIFI, etc. and unobserved heterogeneity also influence the efficiency analysis of electricity distribution utilities. Hence, these parameters as explanatory variables can be incorporated in the future work.

The results obtained from this empirical study would likely be helpful for utility managers and policymakers to know how well they are performing, and how a better corporate strategy a particular utility can formulate to improve its operational efficiency and also its position in the marketplace.

This paper is amongst the first significant attempts that implement SFA approach to the panel dataset over a longer period of time – 2006 to 2013, so, as to evaluate and analyse the operational efficiency of Indian electricity distribution utilities in a single framework after the enactment of Electricity Act (2003). Unlike previous studies, this study investigates the degree to which various exogenous (or environmental) factors influence efficiency levels in these utilities.

The purpose of this paper is to evaluate the utility-level productivity changes in Indian electricity sector during a period that witnessed structural reforms through several landmark regulatory changes.

A transformed fixed-effect stochastic frontier panel approach accounting for time-invariant unobserved heterogeneity is employed to evaluate the productivity changes, and the inefficiency level in 98 utilities spanning over the years 2001–2010. A flexible translog production model is modeled and estimated, and decomposition of productivity into components of changes in efficiency, scale technology and price effect is computed.

The empirical findings obtained from the present study suggest that the utility-level productivity in Indian electricity sector has generally declined during the observed period of 2001–2010 specifically after the implementation of Electricity Act 2003. Also, it is estimated that the state-level un-bundling of the electricity sector is not significantly associated with utility-level efficiency change. Furthermore, efficiency improvements attributable to increased competition are observed only in the case of smaller gas-based generating utilities.

Earlier studies on the productivity evaluation of Indian electricity industry have applied the non-parametric data envelopment analysis approach, which has several limitations. The novelty of the paper lies in the fact that this paper is one of the first attempts that implement transformed fixed-effect stochastic frontier panel approach and thus disentangle unobserved heterogeneity from inefficiency. Furthermore, it is the only paper that analyzes 98 utilities (51 generating utilities, 38 transmission and distribution licensees and 9 vertically integrated utilities) in a single framework during the period 2001–2010.