1. Introduction

Smart metering forms one of the central pillars for modernizing the electricity sector in India. The large scale roll out of smart meters is intended to help in reduction of Aggregate Technical and Commercial (AT&C) losses, improve billing and collection efficiency, and bridge the gap between the Average Cost of Supply (ACS) and Average Revenue Realized (ARR). This will also enable the sector to substantially improve consumer level data availability and implement innovative tariff structures, which in turn can facilitate optimization in power purchase. Effective smart meter deployments have the potential to deliver substantial savings in coming years that can outweigh their implementation costs. To enable  this transition, smart metering projects are being implemented through a mix of financial and contractual models; CAPEX Model (mostly Utility-Owned) where discoms finance the meter purchase and installation through capital investment (CAPEX) and bear ongoing operational costs (OPEX) , the second type being TOTEX (Total Expenditure) Model under Public-Private Partnership (PPP), in which Advanced Metering Infrastructure Service Providers (AMISPs) are responsible for both capital and operational expenditures over a long-term (typically 10-year) contract. In return, they receive a monthly Per Meter Per Month (PMPM) fee from discoms and an upfront subsidy under Revamped Distribution Sector Scheme (RDSS) launched by the Government of India in 2021. The third model is the Hybrid Model where part of the metering cost is financed through government funds or loans, and operations are outsourced through short-term performance-based contracts for part of smart meter implementation.

While the benefits to be obtained by smart metering are undeniable, smart metering involves substantial long-term financial commitments, often running into hundreds or thousands of crores at the state level. The cost burden of these commitments if not managed well will have to be passed on to the electricity consumers, either through direct tariffs, indirect cross-subsidization, or delayed or inadequate efficiency gains.

In this context, a robust regulatory monitoring is essential to ensure transparency in project contracts, to ensure that costs incurred are linked to performance improvement in systems, any delays in implementation are dealt with in a proper manner and cost recovery from consumers is justified and proportional to actual benefits obtained by discoms.

In this article, we present our analysis on the cost structures of smart metering under RDSS, highlight inter-state variations in treatment of costs, and underscore the need for improved regulatory scrutiny to ensure a fair and transparent cost recovery mechanisms.

2. Smart Metering Under RDSS

RDSS has an outlay of ₹3,03,758 crore, of which ~₹1.35 lakh crore is estimated outlay for Smart Metering¹.  A key goal of the scheme is to reduce AT&C losses to 12–15% and improve operational efficiency and billing collection by the revised deadline of FY28, with the earlier sunset date having been FY26. Smart meters will play a central role in achieving this.

Implementation is through the PPP route, where AMISPs are selected through competitive bidding. The AMISPs are responsible for the installation, maintenance, and operation of smart meters over a 10-year contract period. The TOTEX model requires AMISPs to manage both capital (CAPEX) and operational (OPEX) expenditures. In return, they receive a lumpsum subsidy per meter sanctioned by the centre under RDSS through discoms, and a monthly Per Meter Per Month (PMPM) service charge from the discoms The subsidy amounts to 15% of per meter cost or Rs. 900 (whichever is lower) for ‘Other than Special Category’ states and 22.5% of per meter cost or Rs. 1350 (whichever is lower) for ‘Special Category’ states. The PMPM charge is calculated from discom’s respective award rates using the following formula, which has been worked out using smart metering data published on RDSS dashboard². Here, 93 months is the contractual timeline of O&M of smart metering works for AMISPs.

PMPM= ((Award Rate³ -subsidy/meter))/93

Although the upfront subsidy reduces the initial financial burden, a large share of the recurring PMPM service charge is to be borne by the discoms. For example, one of Gujarat’s discom, DGVCL, has a PMPM of Rs.69 with subsidy, which if removed increases the PMPM to Rs.79. The discoms need to devise mechanisms to ensure recovery of these costs through efficiency gains.

2.1 Variations in Discom level Costs

Despite being a centrally designed scheme, there are significant differences in costs incurred by discoms. The award rates for single-phase whole current consumer smart meters vary from ₹6975 to ₹14,697 per meter⁴. This variation in costs suggest that factors beyond technical specifications of the meter are influencing the award rates. However, information related to the additional factors that influence costs is not available in the public domain for analysis.

Figure 1: Award Rates and Awarded Quantity of 1-Ph consumer smart meters for different states

Source: Prayas (Energy Group) compilation from RDSS Dashboard as of July 2025

Figure 1 illustrates the award rates for states with RDSS sanction. It shows high award rate for all ‘Special Category’⁵ states as compared to ‘Other than Special Category” states. The geographical and other features of special category states could be strong influences determining the smart metering price bids resulting in relatively higher award rates in North-Eastern and hill states. Having said that given low electricity consumption in these regions⁶, we think such high monetary obligations to AMISPs in the form of PMPM charge may present a considerable financial challenge for these discoms. The analysis also shows that there is no clear association between the number of meters awarded and the price per meter. For example, Uttar Pradesh awarded around 25 million meters at around ₹8,000 per unit, while Rajasthan awarded far fewer meters at a similar rate. Bihar and West Bengal, with similar deployment scales, show significantly different award rates ₹12,773 and ₹7,347 per meter respectively.

A higher award rate directly translates into a higher PMPM charge payable by discoms. For instance, the difference in Bihar and West Bengal’s award rates for similar number of awarded meters is reflected in a considerable difference in their PMPM charge as depicted in figure 2. For example, among Gujarat discoms, DGVCL’s PMPM is relatively higher than its peers which may be reflective of awarded costs being distributed over a relatively smaller base of approximately 14 lakh awarded meters. In contrast, discoms such as West Bengal and Rajasthan perform better, with average PMPM charges among the lowest at ₹60 and ₹79 respectively. As such, given no clear association between meters awarded and price rates, even small differences in costs may have significant implications for discoms and should be examined closely.

Figure 2: AMISP service charge for select discoms

Source: Prayas (Energy Group) compilation from RDSS Dashboard as of July 2025

 2.2 The Regulatory Blind Spot

The costs of smart metering are closely linked to how contracts are structured and whether the anticipated benefits have been fully factored in. Under RDSS, discoms make monthly payments to AMISPs under TOTEX-based contracts. Since these contracts are not publicly available, it is unclear how award rates are determined or whether they account for the scale of system upgrades and integration required. The absence of public access also leaves questions about the flexibility of contractual terms and how they provide for adjustments over the project’s duration.

While the Standard Building Document (SBD) defines stakeholder roles and responsibilities, it does not clearly specify how challenges like repeated Service Level Agreement (SLA) breaches, sustained consumer resistance slowing deployments, or delays in system integration will be treated. Given that AT&C losses and the ACS-ARR gap vary widely across discoms, the benefits from smart meter implementation will also differ. This makes it essential that justification for the scheme and for any future investments must include a robust cost–benefit analysis.

Early demonstration of tangible operational and financial benefits of the costs of implementation should be prioritized to build confidence among different stakeholders and help drive future investments.

In this context, it is necessary to assess the benefit of smart metering considering discom-level differences. Hence it is important to understand: Is cost recovery for smart metering in discoms aligned with the benefits they are expected to deliver?

2.3 Cost of Modernization

While smart meters are expected to benefit consumers indirectly through reduced AT&C losses and discoms through improved billing and collection efficiency, the approach of cost recovery is complicated. RDSS suggests that discoms will recover costs through improved revenue realization⁷, however the operational costs of smart meters are being passed through to consumer tariffs without adequate justification of the realised benefits. The table below presents a snapshot of the FY 24 Tariff orders for select states based on consumer base along with the summarized responses of the regulatory commissions, while a detailed analysis of the same is provided in Annexure A.

Figure 3: State-wise funding proposals of smart metering expenditure

Source: Prayas (Energy Group) compilation from tariff orders of select states for FY24

Our analysis shows that the landscape for treatment of smart meter costs is still evolving and the difference in regulatory approvals creates uncertainty and asymmetry in cost recovery strategies. Where costs are approved, they are often bundled into the ARR as opex costs without sufficient break-up, making it difficult for consumers to understand, how much of their tariff reflects costs for smart metering after accounting for the benefits realised and efficiency gains achieved.

In essence, these concerns highlight the need for a structured regulatory framework to ensure transparent monitoring of smart metering costs, whether approved as operational expenses or disallowed and to track benefits achieved that can help justify them.

3. Regulatory Oversight Is Critical

A key pillar of electricity sector reforms in India has been independent, accountable and performance driven regulation. However, despite the scale and subsidy support of the RDSS, a strong regulatory framework to monitor smart metering costs and benefits has not yet been developed. Some of the contours of such a regulatory framework are cost benchmarks for meters and PMPM charges, transparency in AMISP contracts, SLA terms or penalty clauses, benefits realised by discoms and a scrutiny of cost pass-throughs in tariff processes.

Currently, Regulators often rely solely on discom-submitted data, which may lack consistency or justification. Moreover, performance audits and payment disclosures related to smart metering are not being demanded in any process, reducing the accountability. Many discoms also project smart metering costs provisionally, but delay or avoid true ups, leading to inaccurate recovery and unclear consumer impact. Without tighter oversight, there is a growing risk that smart metering costs will be passed on to consumers without performance linkages.

4. Recommendations

To ensure smart metering becomes a driver of efficiency rather than a source of consumer burden, a robust regulatory framework is required. The contours of such a framework must include:

• Mandatory cost disclosures in tariff filings

Regulators should mandate discoms to disclose detailed smart metering costs including CAPEX, OPEX, PMPM charges, and vendor information in their tariff filings, along with clear reporting of efficiency gains or cost benefit analysis.

• Contractual Information Sharing

Regulatory commissions must have access to smart meter project contracts, especially regarding charges, SLAs, penalties, and cost escalation clauses. Such that any deviations from approved norms could be scrutinized, if required.

• Standardized cost benchmarking framework

The Forum of Regulators could develop a standardized cost benefit assessment framework which can help State Regulators in the process of cost approvals and tariff determination.

• Data Dashboards

Data on smart meter installation progress, costs, billing and collection efficiency improvements, and other benefits obtained must be shared publicly through dashboards published on discom website.

5. Conclusion

The deployment of smart meters under RDSS is one of the largest digital transitions in India's electricity sector. Its success, however, will hinge not only on the technology, AMISPs capacity and discoms performance improvement but also on how transparently the associated costs and benefits are accounted and managed

Smart metering is an essential investment. But like all infrastructure transitions, it must be implemented with rigorous accountability, transparency, and optimal costs. With strong regulatory oversight, smart metering can truly become a catalyst for increasing operational efficiency in discoms and consumer benefit. However, to realize this potential, it is important to proactively identify and address emerging concerns. Current cost trends, significant inter-state variations, lack of performance linked accountability and unclear recovery mechanisms highlight the need for timely regulatory intervention to protect consumers and strengthen governance.