Non-technical losses today: the business challenges

In the first of Choice Holdings' five-part article series on non-technical losses, Bruno Gapo explains how zero tolerance works when it comes to customer fraud.
Published: Tue 14 Nov 2017

The World Bank estimates that electrical distribution utilities lose $96bn per year worldwide due to non-technical losses (NTL), writes Bruno Gapo, Global Head of Industry Value Engineering at Choice Holdings.

This huge amount of money is partly supported by hyper-inflated tariffs or sometimes local government-subsidised tariffs. The rest, if any, will be a loss for distribution system operators (DSOs).

Energy theft burdens the country's economy, energy customers or taxpayers and the productive sector (services, commerce and industry) by increasing energy costs and degrading the quality of energy.

A similar situation occurs in water and gas networks.

Technical and non-technical losses

Losses in a utility distribution grid are classified as technical and non-technical.

Non-technical losses - defined as the energy that is distributed but not billed - are caused by issues in the meter-to-cash processes.

There are many reasons why. A large proportion is due to theft (customers bypassing the meters and connecting directly to the grid) and frauds (meter tampering and grid manipulations to reduce the registered consumption). Other disparate issues also contribute to non-technical losses – such as flaws in processes, in IT systems and their integration components, and sometimes due to internal fraud.

A successful NTL combat programme must target all these issues.

In this Engerati video interview, Rui Mano, VP of Global Alliances at Choice and Bruno Gapo discuss energy theft and the prevention options available for utilities.

Energy theft - a zero-tolerance approach

Utility distribution companies should all consider the NTL issue, even when the percentage is considered low.

Firstly because it is not fair to charge honest customers (or taxpayers) for the wrong behaviour of others, and the utility should be responsible for taking appropriate measures, not leaving it untouched just because “it is not too much”.

Additionally, experience shows that NTL left unmanaged tend to increase – period. Cultural aspects will prevail, and some honest customers may feel uncomfortable knowing that a neighbour is frauding and he/she is paying extra to cover it. Bad examples prosper; zero tolerance works.

It doesn’t mean that zero NTL should be the goal as a) it may be not feasible and b) the cost would be higher than the benefit. The programme should target the optimum cost-benefit ratio while sending the message that the company is targeting the problem and dishonest customers will be found and penalised.

Another myth about NTL is that it is connected with poverty. Indeed, although poverty is an issue, experience shows that a significant amount of NTL comes from commercial and industrial sectors aiming to increase the margins and the profits.

There are also cases where the excessive consumption of energy and water is not compatible with the alleged purpose of the premise, being it a residence or a commerce. In such cases, reducing the registered consumption to values compatible with the declared activity will serve to hide illegal, many times criminal activities. A real, plausible probability of being caught should always be pending over anyone considering to commit a fraud.

Meter-to-cash process

A well designed NTL combat programme should consider all phases of the complete meter-to-cash processes. It should target the detection of possible frauds, the selection of the most probable and economically valuable cases, the inspections on customer premises to verify for and fix actual frauds, the calculation and billing of unbilled consumption as well as penalties.

Finally, no process will be complete without followup and control of all steps allowing to identify flaws, manage the execution, report and learn from experience and improve – always improve.

Such a complex multi-phase, multi-departmental and technically demanding process requires strong processes in place and a team with experience, dedication and the right skills for execution. Of course, a specialised software system to support the complete process in an integrated way will be of capital importance.

A 2017 report from Northeast Group 'Electricity Theft and Non-Technical Losses: Global Market, Solutions and Vendors' asserts that revenue intelligence software provides the only proven fraud management solution for once-a-month conventional meter readings, the handling of smart meter interval data as well supporting the transition to AMI on the same platform.

Choice's Revenue Intelligence software covers the full range of energy and water theft by combating fraud activities on conventional and smart meters.

The solution combines artificial intelligence algorithms and machine-learning technology. The native algorithms of Revenue Intelligence predict fraud probability and associated financial return for each customer and fraud thus helping select inspection targets that have a higher probability of theft and higher value.