Curbing technical, commercial and collection losses in Distribution Companies

Introduction

The Oxford Dictionary defines loss as the state of no longer having something or as much of something. In the parlance of the Nigerian Electricity Supply Industry (NESI), distribution losses can be categorized into technical, commercial, and collection losses. There are several ways through which Distribution Companies (DisCos) suffer losses in their operations. These losses result in massive negative impacts on their business charter and the electricity value chain in general. At this juncture, it is, however, important to state that it is impossible to totally eradicate losses within DisCos, although, they can be radically minimized.

Background

The categories of losses suffered by the DisCos are explained below:

a. Technical Loss
This loss results from the wheeling and distribution of electricity through conductors, substations, and transformers. Nigeria’s dilapidated power infrastructure hugely contributes to the level of technical losses in the value chain. Predictors of technical losses within DisCos are undersized conductors, vandalism, line snaps, losses on the transformers, knock-down of technical infrastructure, sub-standard equipment, weak joints, etc. However, these losses can be minimized with proper equipment sizing and selection.

b. Commercial Loss
This loss is the difference between the energy received and the energy billed by the DisCo. In other words, it is the quantity of energy that is consumed but not accounted for. Predictors of commercial losses are linked to illicit activities, such as meter bypass, illegal connections, the existence of illegal meters, meter tampering, and energy theft. The underestimation of the electricity bills of unmetered customers also contributes to commercial losses.
Commercial Loss = Energy Received – Energy Billed

c. Collection Loss
This loss occurs when the DisCo is unable to recover the amounts due for consumed energy. It is the difference between the total amount billed for energy consumed and the total amount collected from the customers for energy consumed. The non-payment of electricity utility bills by customers results in collection losses.

Collection Losses = Amount Billed – Revenue Collected

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The combination of the three aforementioned losses results in what is referred to as Aggregate Technical Commercial & Collection (ATC&C) losses. From the distribution license, DisCos can own and operate a distribution system. Hence, DisCos are responsible for ensuring the connection of willing customers to their distribution networks as well as carrying out activities such as the installation and maintenance of post-paid and pre-paid meters. Other DisCo operations include billing of electricity customers and collecting electricity payments.

Challenges, Impacts, and Recommendations

Challenges and Impacts

The reduction of ATC&C losses was targeted in the Performance Agreement as signed between the Bureau of Public Enterprises (BPE) and the DisCos at the sector’s privatization handover in 2013. Unfortunately, most of the DisCos have been unable to meet their ATC&C loss reduction targets. These losses have considerably contributed to the colossal amount of market shortfalls as well as the inability of the DisCos to meet their market obligations to the Nigerian Bulk Electricity Trading Plc (NBET) and the Market Operator (MO). In addition, many of the DisCos face a paucity of funds which has inhibited their ability to provide critical electricity infrastructure such as meters, transformers, feeders, etc., to their customers.

Loses from energy theft account for a substantial part of the ATC&C losses currently experienced by the DisCos. This has led to poor collection efficiencies for the DisCos, low remittance up the value chain, and high estimated billings to unmetered customers due to stolen and unaccounted energy. Consumer malpractices that attribute to high ATC&C losses are widespread across all the DisCos and continue to have devastating impacts on businesses. Also, low billing and collection inefficiencies of the DisCos have contributed to the huge ATC&C losses in the sub-sector.

This is due to the inability of the DisCos to collect and assure their monthly revenue from their teeming customers, most of whom are residential. Major contributors to high collection losses include the huge metering gap, the inability of the DisCos’ representatives to adequately cash-drive in areas where post-paid meters are prevalent, customer apathy to pay bills and massive debts from Ministries, Departments and Agencies (MDAs).

According to the Nigerian Electricity Regulatory Commission (NERC), as of March 31, 2022, Abuja DisCo had the highest metering rate of 59.92 percent, while, Yola DisCo had the least metering rate of 17.95 percent. At this time, the total number of registered active electricity customers in Nigeria was about 12,542,581. However, only 37.79 percent representing 4,740,114, were metered. This implies that about 62.2 percent of registered customers are billed based on the estimated billing methodology. Under the estimated billing methodology, DisCos also lose huge revenue through the illegal activities of some of their customer relationship officers who defraud and extort consumers.

In essence, the distribution sub-sector is still plagued with inadequate infrastructure, vandalism, and theft of equipment, as well as the inability to accurately meter and invoice their customers and collect revenues.

Recommendations

To ensure the sustainability of the DisCos, it is imperative to reduce the losses within the electricity distribution network. The following can be implemented to ensure a reduction in ATC&C losses:

a. Technical Losses: These losses can be minimized with proper equipment sizing and selection of the distribution equipment. Technical equipment like conductors must be right-sized. In addition, distribution transformers should be metered and repairs on lines and joints, etc. should be carried out immediately.

b. Commercial Losses: Here, strategies must be formulated to improve billing efficiencies. DisCos must close the huge metering gap in their franchises by providing meters to registered consumers. Also, meter monitoring teams should be commissioned to apprehend customers that engage in illicit activities, such as meter bypass, and illegal connection to the electricity supply (energy theft). DisCos that have illegal meters in their franchise areas must flush them out. Obsolete meters must also be replaced.

c. Collection Losses: The sensitization of customers will improve their willingness to pay for electricity consumed. DisCos can reduce their collection losses by engaging in regular result-targeted cash-drive exercises to collect electricity payments, especially from their estimated customers. The adoption of adequate monitoring to eliminate the illegal activities of DisCo staff who defraud and extort consumers will further reduce consumer apathy in paying for electricity. To address this, electronic payment channels and service centers can be adopted for easy payment of electricity bills and vending.

Conclusion

The far-reaching negative effects of high ATC&C losses within the distribution sub-sector cannot be overemphasized. These losses are responsible for many challenges currently plaguing the DisCos. The results of ATC&C losses have so far hampered the growth of the DisCos, making them the most turbulent sub-sector in the Nigerian electricity value chain.

There is a need for DisCos, with support from other sector stakeholders, to explore and implement targeted approaches to provide long-lasting solutions to the challenges affecting their respective franchise areas. A drastic reduction of the ATC&C losses in the NESI would improve electricity service delivery and ensure that the DisCos can meet their minimum remittance obligations to the electricity market.