Since 1998 there has been full retail competition in electricity supply in the UK, and customers have a choice of supplier. In the run-up to the introduction of this market, it was concluded that special arrangements might be required to deal with electricity theft. For instance, there is no one ‘utility’ which suffers losses from theft in the traditional way – the market comprises a number of interacting parties made up of competing suppliers and franchised network operators.
Because of the way in which the market processes work (particularly the metering arrangements) theft by a customer involving slowing of or bypassing the meter means that the supplier of that customer pays only on what the meter registers. In other words, the supplier does not pay full energy or network usage costs. Energy costs are smeared across other suppliers in the area who pay according to market share, and network operators do not receive full Distribution Use of System (DUoS) income. When the theft is discovered, all this has to be unravelled and put right!
In 1998 it was agreed that the network operator was best placed to provide revenue protection services as it had an incentive to recover otherwise lost DUoS income and operated in a specific geographic area. It would provide a basic service to all suppliers in its area, paid for through DUoS charges to them, and would operate to an RP Code of Practice.
This allowed for extra services beyond basic detection (for instance negotiating to recover the value of stolen electricity) on a voluntary and transactional basis. Suppliers would be obliged to ensure that their meter reading and other agents reported suspected theft for investigation, but the RPS unit reserved the right to follow up other sources. At the time these arrangements were put into place they were held up as a model for others, but over the next four years it became evident that there were problems.
The UK regulator Ofgem was persuaded in early 2004 to launch a formal consultation on the effectiveness of RP arrangements, both in the gas and electricity supply industries. As regards electricity, this identified several areas which needed review, particularly the financial disincentive on suppliers to report theft. Following a workshop the trade associations for suppliers and network operators jointly undertook to set up working groups to review the arrangements and make recommendations to Ofgem for changes to address perceived deficiencies.
The Obligations and Incentives Working Group has been clarifying existing obligations in legislation and the Supply and Distribution Licences to ensure they convey ‘the correct messages’. It is also developing a financial model to examine the exact impact of theft within the complex market procedures indicated above, and will use this to propose an incentive scheme to redress the current imbalances. The Operational Interfaces Working Group has been examining the processes, particularly the exchanges of information necessary to identify and investigate theft. Much of this has been done through revision of the RP Code of Practice, which has been expanded to provide guidance on such things as the manner in which investigations are conducted and the treatment of vulnerable customers. The group has also been looking at how units lost to market settlement can more easily be ‘put back in’ when theft is discovered. The Groups are due to report to Ofgem in early autumn.