(John Kemp is a Reuters market analyst. The views are his own)
By John Kemp
LONDON, July 5 Cannabis farms consume an average
of 12,000 kilowatt-hours of electricity per month each, 40 times
the power used by a typical household, and account for a third
of all electricity stolen in Britain, according to a report by
the power market regulator.
Energy suppliers and regional distribution network operators
detect 20,000 to 25,000 cases per year, according to the Office
of Gas and Electricity Markets (Ofgem)("Tackling electricity
theft" July 2013).
The retail value of the stolen electricity is about 20
million to 30 million pounds per year, but once overheads for
investigations and equipment replacements are taken into
account, the total cost could be double that, the regulator
Some industry estimates put it as high as 200 million pounds
($301.3 million), all of which must be recovered from paying
Estimates are imprecise because it is hard to differentiate
between thefts and transmission losses.
In a separate draft impact assessment, Ofgem claims that
current investigations detect around 16,000 thefts on domestic
premises per year, 750 thefts on commercial premises and over
1,600 illegal cannabis farms. ("Electricity theft: draft impact
assessment" July 2013)
Electricity suppliers are already required to take "all
reasonable steps" to detect and prevent theft under the terms of
their licences. But Ofgem is worried not all suppliers interpret
this condition in the same way and that some suppliers may not
be spending enough to detect and prevent theft.
Net benefits to an individual electricity supplier from
detection and prevention work may be lower than the net benefits
for the industry as a whole.
"Electricity suppliers are unlikely to have financial
incentives to carry out theft detection and deterrence
activities to the extent that is in the interests of the
industry as a whole and of honest customers," Ofgem said.
Under the current system, each electricity supplier pays for
the costs of generation and transmission based on an estimate of
its customers' consumption in each half-hour period.
The shortfall between how much electricity is generated and
how much suppliers estimate their customers used based on meter
readings is spread across all suppliers and passed on to
customers. Electricity suppliers, therefore, face no direct
costs (other than missed opportunities to profit) from theft.
Moreover, once a theft is detected, the electricity supplier
must estimate how much has been stolen and is then liable for
generation and transmission charges on the amount, which it may
or may not be able to recover from the thief, potentially
leaving it out of pocket.
"Anecdotal evidence shows that suppliers do not always enter
a reasonably accurate estimate of the volume of units that have
been stolen following detection of electricity theft" into the
settlement system, according to Ofgem.
If theft is discovered, the supplier has an incentive to do
so as quickly as possible to minimise its settlement liability.
If theft is not discovered at all, however, the costs are borne
not by the individual supplier but by all suppliers, and
In ordinary thefts, the supplier may hope to recover at
least some payment through court action or by fitting a
prepayment meter, in effect charging the customer more for
future consumption to recoup under payment for past use.
But in the case of cannabis farms, the amount of electricity
stolen is so huge from an activity that is inherently illegal
that there is no realistic prospect of recovery.
Ofgem proposes introducing a more explicit requirement for
each supplier to detect and prevent theft at premises registered
with it and duty to investigate once theft is suspected.
The watchdog has also floated the idea of new financial
rewards for suppliers who detect thefts, modelled on similar
arrangements introduced recently in the gas market.
Suppliers could be rewarded with a fixed fee for each
confirmed theft detected (with higher fees for large-volume
thefts such as cannabis farms) to be funded by the entire
industry according to market share.
Or an industry-wide target could be established with an
"incentive pot" distributed according to how many thefts are
detected by each supplier, again funded by a levy on suppliers
as a whole.
In both cases, the system could be designed to be revenue
neutral across suppliers as a whole. Effective investigators
would gain at the expense of the laggards.
Similar measures could be introduced to encourage suppliers
to admit and enter accurate estimates of the amount of stolen
electricity into the system and compensate them for every stolen
Under the proposal, suppliers would be required to pay for a
centralised Theft Risk Assessment Service (TRAS) to pool data
across the industry and from sources such as the police in order
to identify the most promising targets for investigation.
Suppliers would be expected to investigate all cases identified
by TRAS or provide good reasons for not doing so.
Ofgem also wants a 24-hour theft hotline, a register of
stolen meters and a forum for sharing best practices and
improving coordination among the agencies and firms charged with
The introduction of smart meters, which Britain's government
wants to roll out to every household between 2015 and 2020,
should also help: removing some of the existing stock of
tampered meters and giving electricity suppliers much more
detailed consumption data, which can be integrity-checked to
Despite the fanfare with which the consultation was
launched, honest customers are unlikely to see much benefit.
Thefts currently cost electricity customers an average of just 7
pounds per year, assuming the total cost really is as high as
200 million pounds. Cannabis farms cost just 2 pounds per
customer. Bills are unlikely to fall by as much as that, since
revenue protection costs will rise.
In the context of Britain's soaring bills to cover the cost
of phasing out coal-fired power plants, investing in more
renewable generation from offshore wind, and rebuilding the
transmission grid over the next couple of decades, savings from
improved theft detection will be a drop in bucket.
The biggest benefits are likely to accrue to law enforcement
agencies, which will get extra help in identifying illegal
Ofgem's consultation documents are available on the internet
($1 = 0.6638 British pounds)
(editing by Jane Baird)