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DEVELOPMENT OF SERVICE ASSESSMENT MODEL BY

CUSTOMER NEED ANALYSIS

ABSTRACT
Consumers with contract demand of 1 MW and above are eligible to procure power beyond
the incumbent distribution companies through Open Access. At present ~2000 odd
consumers (mostly industrial and bulk consumers) are trading on power exchanges through
Open Access. All transactions and operations under Open Access are facilitated by either
licensed power traders or power exchange members. Such market facilitators are striving in
a competitive environment and are today offering range of products and services to
consumers. This is a welcoming momentum towards development of an efficient power
market in India where consumers are empowered in day to day purchase and sale of energy
as per their requirements. Consumers have now the opportunity to align themselves to
power trading and include power procurement through Open Access as part of their
business value chain. The objective of this research paper is to develop a service
assessment model for consumers that enable them to make an informed decision on
designing an effective business activity within their organization by understanding the right
services and respect service provider.

INTRODUCTION
Open Access to the power grid is a key to introduce competition and develop electricity
markets, and thereby increasing market efficiency. Open Access refers to the provision for
any entity selling or buying electricity, for a cost-reflective fee and subject to transparently
defined system security constraints, to connect to and make use of transmission and
distribution systems, regardless of who owns and operates the power grid. The flexibility
permitted by open access allows for multiple and diverse power supply contracts that take
advantage of the load and time diversity and contribute to better utilization of resources.
Increased competition leads to more efficient sector operation, improved quality of power
supply, and downward pressure on tariffs.
The basic foundations of open access are laid by establishing an open access regime
through enforcing the generators legal right to access the grid to sell their capacity and
energy, and wholesale buyers right to contract with the generators, either directly or through
an authorized market operator. The institutional requirements for minimal open access
include transparent rules, procedures, and protocols for grid and market operations.
Implementation of Open Access requires formation of CTUs and STUs, promotion to the
generators, appropriate pricing method and congestion management among many others
needed. Many authorities are involved in the business of power trading and its regulation.
Central Electricity Regulatory Commission (CERC), the key power sector regulator is
responsible for formulation of National Electricity Policy and Tariff Policy and other policies
with respect to Open access transmission and distribution. Load Dispatch Centres (LDCs)
have been established and are responsible for smooth transmission of electricity and
optimum scheduling. Central Transmission utility/State Transmission Utility (CTU/STU)
provides for non-discriminatory open access to its transmission system by any licensee or
generating company to any consumer. It also checks for the availability of corridors for the
transmission. Central Electricity Authority (CEA) lays down grid standards and specifies
measures relating to safety and electricity supply. It also regulates installation of meters.
Open Access consumers in India have increased from 9 in 2009 to ~2500 by 2013. The
traded volume has also increased from an average daily trade of 9445 Mwh in FY 2008 to
~80,000 Mwh at present. Power traders are competing to facilitate consumers purchase
power through Open Access on Power Exchanges in a highly competitive market and
introducing various supplementary products/services to optimize the business of power
trading.
However, from a consumers perspectives, new and existing consumers migrating on Open
Access are still failing to understand power trading as a business process, and there lies a
strong imperative for them to effectively translate the services provided by power traders into
their business value chain.
Consumers who imbibe power trading as an operational activity in their business value chain
benefit the most from it. Developing an operational activity requires a comprehensive
understanding of power trading and traders thus focus on providing services that can easily
be translated and customized in an organizations business value chain.

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For a consumer to optimize power procurement and cost savings, there exist a critical
reliance on price trends and market information. Good power traders support the customer
by providing them daily and weekly consolidated market information through newsletters and
daily reports. Consumers are helped with all matters related to billing, scheduling and
application punching. Such activities are supported by online modules hosting the consumer
at the traders end. Purchasing power from the spot market is a daily affair and a consumer
has to either pay daily in advance for power to be consumed or may pay later on credit.
Good traders aim to adapt to an organizations financial operation and develop customized
credit solutions matching to their billing cycle. Other than these, traders facilitate all
necessary approvals and requisites (if not expedited the right way, consumers may have to
wait for 8-9 months before getting any sought for approval) for Open Access.
With reference to the services provided by traders, the objective of this research paper is to
understand power trading as an operational activity in an organizations business value
chain and the services considered to be critical for design of such business activity. Based
on the results the paper also presents a decision making matrix for new and existing
consumers in evaluating a power trader that may help an organization optimize market
benefits and resources.

RESEARCH METHODOLOGY

Following the literature review, the first phase of the methodology was to identify the
services or variables both offered by power traders and used by consumers. Through focus
group sessions, one-on-one interviews and audio calls, data was assimilated with respect to
all possible service variables. Further, a questionnaire was floated across a large sample
making consumers rate services on a 5 point Likert scale.
Such scale helped respondents specify their level of agreement or disagreement on this
symmetric agree-disagree scale for a series of statements. This has helped us in recording
the perception of the respondents for a given variable. The five point scale has given the
consumer more choices to assess a variable or service and has helped in developing
measurement of a certain service assessment score.

The terms used for assessing the identified variables are observed below:

Variable
s

Stro
ngly
Disa
gree
(SD)

Equival
ent
Ratings

Dis
agr
ee(
D)

Not
Sure
(NS)

Strong
ly
Agree
(SA)

Agre
e(A)

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All variables were further analysed by factor analysis following which five variables were
identified most important to consumers.

a. Advisory and Market Information Market information and knowledge shared with
consumers that enable them to make power purchase decisions with respect to
prices and quantum
b. Flexible Credit Solutions - Billing cycle designed and mapped with the financial
process of consumers; for an example designing credit period ranging from 3 days to
45 days
c. Customer Service Support - All field support and liaisoning activities, expedition of
approvals and clearances from competent authorities, metering infrastructure and
support, automated bidding support and other services for continual
operationalisation of consumers for purchase of power through Open Access
d. Trading Margin Fee charged per unit of power purchased by consumer
e. Technology Solutions Analytic and business intelligence tools for optimizing
power procurement and transferring maximum savings to consumers

As the objective of the research is to identify how customers imbibe power trading in their
business value chain, and how the market at present offers various services to the
consumer, it is important to understand the right service mix consumers opt in designing the
power procurement business activity.
Conjoint Analysis is a tool that helps in identification of such services by optimizing quality
and price of the service. The advantage of conjoint analysis is that it helps consumer
establish psychological preference towards a range of services. It also measures
preferences of consumers and helps identifying actual and hidden drivers for service
evaluation which may not be apparent to the respondent themselves.
To quantify our analysis, 50 sample service baskets (cards) were created out of 3125
(55 = 3125) possible cards, with each card rating each identified variables with respect to
their terms differently (from 1 to 5). No cards were similar in rating all variables with respect
to the terms. A sample of only 50 cards has been used as it is impossible to assess all 3125
cards. For an efficient and effective assessment, fractional factorial design has been and a
resulting set, called an orthogonal array, has been used that represents the complete
permutation of identified variables and terms.
A sample of 32 Open Access consumers, characterised by different locations (across all
States where open access is allowed) and different service providers (power traders), were
approached. The sample size considered was small in size as the consumer segment is
small in size. As per the market regulations, only consumers with contract demand of 1 MW
and above are eligible for procuring power through Open Access. There are presently only
~2000 consumers registered on power exchanges.

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All 32 consumers were asked to assign preference scores (ranging from 1 to 100, as in
Likert Scale) to each of the 50 cards. All preference scores were thereby analysed in SPSS.
The method helped us analyse how consumers made preferences between different service
mix and derived the implicit valuation of the individual elements making up the service that
gets translated to a business activity within an organization. These implicit valuations
(utilities) have been further used to create a market model that helps consumers in deciding
the most suitable service, and also the service provider. These utility values are analogous
to regression coefficients and provides a quantitative measure for each variable (or service),
with larger values corresponding to greater preference.
Table 1 provides a measure of the relative importance of each service known as an
importance score or importance value. The values are computed by taking the utility range
(highest value lowest value for a service) for each service distinctly and dividing the range
by the sum of utility ranges for all services. The higher the importance value, more is the
criticality.

Importance Values
Advisory/Market Information

22.545

Flexible Credit Solutions

20.731

Customer Service Support

21.972

Trading Margin

17.469

Technology Solutions

17.283

Table 1: Importance Values

Table 2 shows linear regression coefficients for those services specified as linear in SPSS.
The utility for a particular service is determined by multiplying the terms by the coefficient.

Coefficients

B Coefficient

Advisory/Market
Information

4.809

Flexible Credit Solutions

4.465

Customer Service Support

4.705

Trading Margin

3.780

Technology Solutions

3.710

Table 2: Coefficients

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Table 3 indicates Pearsons R value that provides the measures of the correlation between
the observed and estimated preferences. The correlation coefficient for the model is a strong
.985 implying 98.5% of variation in Y or the Service Assessment Score can be explained by
these five variables.

Correlations

Value

Sig.

Pearson's R

.985

.000

Table 3: Correlations Table

RESULTS

Mathematically, the model can be represented as Y= + 1X1 + 2X2 + 3X3 + 4X4 + 5X5
The model is obtained by multiplying the coefficients of variables with the variables, where Y
is the dependent on X1, X2, X3, X4 and X5 which are independent variable. 1,2, 3, 4 and 5
are coefficients of the independent variables and is constant, where
Y = Service Assessment Score
X1= Advisory/Market Information

1= 4.809

X2= Flexibility Credit Solutions

2=4.465

X3= Customer Service Support

3=4.705

X4= Trading Margin

4=3.780

X5= Technology Solutions

5=3.710

The linear model thus derived is

Y = 4.809*Advisory/Market Information + 4.465*Flexibility Credit Solutions +
4.705*Customer Service Support + 3.780*Trading Margin + 3.710*Technology
Solutions

CONCLUSION
The study indicates the application of conjoint analysis in the business of power
procurement by industrial consumers through open access. This approach enabled us to
develop a service assessment model which could be used as a decision making tool by all
consumers. This will enable consumers to make an informed decision on designing an
effective business activity within their organization by understanding the right services and
respect service provider.

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As per the study conducted, it is evident that for evaluating a power trader, the consumer (a)
gives maximum credence to the ability of the power trader in delivering market information
and thus associates with a trader that has strong analytical and forecasting ability in the spot
market, (b) associates with a power trader that has an efficient customer service support
with respect to institutional clearances and requisite physical infrastructure (however, this
service is valued only during operationalisation of a consumer on the power exchange) and
(c) values the net worth of the company for mitigating their financial risks and concerns.

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