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Electricity Theft in Jamaica

Keva Steadman
Department of Economics
State University of New York at Binghamton

Committee: Susan Wolcott (chair), Wei Xiao, Haim Ofek

Electricity theft is a pressing problem that affects the bottom line and investment prospects of
utility firms across the globe. While it has minimal effects in some jurisdictions, in others
electricity theft is greatly affecting the viability of distribution firms. Even more alarming is the
fact that many policies targeting electricity theft have been made without adequate research into
how it is manifested. This paper is a first in a three part study that seeks to examine the patterns
of electricity theft in Jamaica since 1993 and try to determine the agents that are mainly
responsible for driving these patterns.

High risks of electrocution and electrical fires are associated with this type of electricity theft. Meter bypass occurs when some of the wiring of the premises is engineered to not pass through the meter. It is also very easy to detect. Like meter tampering. billing irregularities and unpaid bills.Background Electricity theft is not a new phenomenon but it is becoming important because of its impact on the cost of electricity to consumers and the utility companies alike. Recently. This tampering can be detected only by an audit on the premises or by discrepancies in the electricity bill. electricity theft hardly carries strict penalties. Unlike other forms of theft. Billing irregularities is a manifestation of corruption in the utility company through bribes to utility officials. Electricity can be fraudulently accessed through illegal hookups. Meter tampering can be done by inserting a device into the meter resulting in an inaccurately lower reading on the meter. there has been the development of more policies and stronger legislative power to deal with those who take part in the fraudulent extraction of electricity1. Amendments to the Theft Act in the UK. Illegal hookups occur when electrical wires are directly connected to the grid system from the individual’s premises. There are four main ways that electricity can be accessed illegally (Smith. this is also very difficult to detect. however. this type of theft is the least sophisticated and is usually practiced by poorer households. 1 . Meter related theft is hardly found among poor households because it is technically sophisticated and usually requires some electrical wiring knowledge. 2004). meter tampering or bypass. Technically. the meter reader is compensated for not reporting the accurate 1 See India’s Electricity Act (2003). Usually.

The main argument is that poor governance harbors a culture of corruption which becomes innate throughout the society over time. In spite of this knowledge. In general.iurpa. These countries were chosen based on the availability of data from the World Bank. Electricity theft is becoming increasingly more frequent in South Asia. It is still unclear. 2 See the International Utilities Revenue Protection Association website www. this can only be found by doing a detailed power theft analysis. is not a popular option with the poor. This method again. which societal group or productive sector is primarily responsible for the bulk of electricity theft. Refusal to pay electricity bills is a common practice by all socioeconomic groups. there still remains a vague understanding of how much theft is being stolen by different groups of the society. According to 2 . which is the objective of this research. A correlation analysis done by Smith (2004) shows the relationship between electricity theft and 5 political dimensions for 102 countries. This objective of this paper is to answer this question by first examining the patterns of electricity theft over the period 1993 to 2006. Global Picture The problem of electricity theft is not unique to Jamaica. The utility company has the greatest control over this since they are able to disconnect customers for unpaid bills.electricity usage of the property. Disconnections are usually a prelude to another form of electricity fraud. it is found that electricity theft is more prevalent in countries that have poor governance. South America and there are even isolated incidents reported in the United States2. This will be done by graphical and regression analysis.

4 percent of total revenue earned from electricity sales. 2004). 2009). 2008). The AMI allows the utility to virtually disconnect the meter if there are any discrepancies noticed (Loeff. electricity theft in Indonesia was roughly between 58. Between 1980 and 2000. One of the first studies on electricity theft was done in a dissertation effort by Priatna (1999) who looked at the case of electricity theft in Indonesia. Electricity theft in India is primarily political and has its roots in the agrarian sector of the society (Kumar. State Electricity Boards (SEB) have grown increasing negligent of the problem (Smith.4 percent of total distribution losses and between 1. electricity theft in India was roughly US$4. In 2004. Because of the measuring difficulty. This study emphasized that the lack of access to the electricity grid by mostly the agricultural sector was the main cause for the pervasiveness of electricity theft in Indonesia. Meter tampering can be reduced or even eliminated by introducing advanced metering infrastructure (AMI) otherwise know as smart meters (Haney et al. East Asia/Australasia and Western Europe. causing regular increases in electricity rates.5 percent of GDP. which was dire in Indonesia at the time of this study. Deterrence measures are mainly technical.5 billion and 1. Large increases were recorded in all geographic regions except North America.4 to 6.5 percent worldwide. Some provinces in India have taken several measures to mitigate against the widespread practice of electricity theft in the 3 . The case of India differs in many aspects from the case in Jamaica. the utility company passed on some of the costs to the legal consumers. 2004) and stealing electricity has almost become a way of life for some. Foregone revenue could have been used for investment into capacity expansion. electricity theft as a share of total electricity generation grew by roughly 4. very little research has been done on electricity theft. In 1996. In addition.

this suggests that electricity theft is more likely to be committed by persons who are poor. Prior to the mechanisms employed. a change in the overall culture of electricity provision in the region. low income households. The subsequent strategy targeting electricity theft had a four prong approach. they showed that although they have an SEB. This approach dealt with strengthening the law and enhancing enforcement of it. A regression analysis was done to see if there was any relationship between nontechnical losses and socioeconomic conditions. In essence. among other things. Electricity Theft in Jamaica The generation and transmission and distribution aspects of electricity provision are unbundled in Jamaica. In Andhra Pradesh. more fraudulent connections were detected and persons found to be involved in electricity theft were held accountable regardless of their political and social affiliations. This resulted in. Subsidies to the electricity sector imposed on budgetary allowances to other just as needy sectors. 4 . The most recent study on electricity theft was done in Brazil. they could still reduce the volume of electricity theft in their region (Bhatia and Gulati. households involved in the informal economy and without proper water supply infrastructure were more likely to participate in electricity theft. the implications of electricity theft were great. there was also an effort to identify the corruption involved within the utilities and a better management control and customer service system for the utility company. Nontechnical losses are borne by the distribution firm. 2004). There is competition for generation. The results showed that areas with higher murder rates. transmission and distribution is still a monopoly guaranteed by an All Island Electricity License (2001).region. With increased audits.

The more wealthy residents and the commercial sector are the main culprits of meter related theft which can be meter tampering or bypassing the meter 4. January 18. This method of theft is harder to detect and can only be confirmed by a random audit. 2009 5 . There are 2 dominant methods of electricity theft in Jamaica. 60000 50000 40000 MWh 30000 20000 10000 1992m1 1994m1 1996m1 1998m1 2000m1 2002m1 2004m1 2006m1 month Figure 1: Nontechnical losses in Jamaica 1992 – 2006 Source: Ministry of Energy and Mining. There is a potential for very large amounts of electricity generated being lost to theft because of the lower rates of detection and the high usage activities associated with meter related theft. There is a high risk to the culprits as well because of frequent electrical fires and electrocutions. it is very difficult for enforcers to have these connections removed without the assistance of the police because of the resistant nature of these communities3. Kingston Jamaica 3 JPS Tariff Review Application 2009 4 Jamaica Gleaner. This is a more sophisticated method of theft which is also more expensive. However. Illegal hookups are mostly found in the inner city communities and are most easily detected.

In 2008. nontechnical losses are about 13 percent of net generation of electricity which amounts to 18 percent of total revenue5. Since 2006. What is unique to Jamaica is that despite the increased efforts in staving off electricity theft.4 percent (see figure 1). In addition. is the share of GDP which has been rising since 1996 and is now at about 1. 6 JPS Tariff Review Application 2009 6 .000 illegal hookups with the help of the police6. those found to be involved in meter related theft face punishment of 6 years of electricity back payments based on the estimated amount of electricity used. nontechnical losses accounted for over 20 times in profits to the utility company.000 for illegal hookups. increased random audits and regular removal of illegal hookups have been conducted but theft is still rising. there still seem to be a regular increase. Also. anecdotal evidence suggests that electricity theft is more common to urbanized areas and is not related to lack of access. 5 This was the figure in 2007. Recently. which is comparable with India. Unlike the results of the studies so far. Jamaica is about 98 percent electrified. Even more alarming. the utility company has removed 74. there have been renewed efforts on the part of lawmakers to introduce more stringent punishment for those who steal electricity. In fact. Media advertisements now show that fine has been increased from a flat rate of J$200 to J$100. In Jamaica.

7 . electricity rates in Jamaica are 7 Preparation of a National Integrated Electricity Expansion Plan and Efficiency Study for Jamaica. When comparing with other countries.5 million and in fact. In addition. between 2003 and 2007.4 1990 1995 2000 2005 2010 year Figure 2: Nontechnical Losses as a Share of GDP in Jamaica Costs of Electricity Theft The costs of electricity theft can be categorized into three sub-groups: foregone revenue which leads to a loss in profits.8 . the bottom line of the distribution firm in 2007 was also affected by theft. A Government of Jamaica 2007 commissioned study7 showed that the present value of required investments at least cost over the period 2009 to 2023 for new lines will be between US$104. prepared by Acres Management Consulting.6 . Final Report. which was below US$30 million.2 Share of GDP (%) 1 .4 1. The cost of electricity theft in 2007 was equivalent to US$142 million in revenue. 1.9 million and US$124 million and for new transformers will be between US$51 million and US$58 million which in total is between US$156 million and US$182 million. Vol 1 – Main Text. The firm recorded a net loss of US$ 7. has only made a profit in 2 years. avoided investment costs and increased electricity rates to consumers.

the most precise estimate can be found by selecting a representative sample of the grid customers to check for cases of electricity fraud within households. and industrial sales which were also found to have unit root. electricity rates were 9. The time trend and seasonality effects were removed from the time series of nontechnical losses (NTL).13 US cents per kWh in 2007. Electricity is at best an estimate based on the nontechnical losses in a utility system since electricity theft is very difficult to detect and so very difficult to measure. Rate 10 measures sales to the residential customers. The information garnered is then extrapolated to the population of customers and an estimate of the losses is found based on the total electricity generation. electricity rates were 27. large commercial sales. the technical transmission and distribution losses are subtracted from the total system losses and what are left are the nontechnical losses. In 2007. of total system losses.relatively high. Then. graphs and OLS estimation were used as the main tools of analysis. each series was first differenced so that OLS estimation could be used. small commercial sales. Electricity consumption is measured as electricity sales and is categorized by rate classes. Rate 20 measures sales to small commercial firms. Data and Methodology As earlier mentioned. OLS estimation on series that have unit root will lead to spurious regression (Enders. The time span of the data is from January 1993 to December 2006 in monthly frequency. Rate classes are determined primarily by usage and customer type. Rate 40 8 . A less precise but more practical methodology is to first get the total system losses by looking at the difference between the net generation and total electricity consumption. residential sales. After removing the time and seasonal trends from the data. According to Smith (2004). 13 percent. 2004). in the US for example. Nontechnical losses in Jamaica are estimated to be a fixed share.7 US cents per kWh in Jamaica.

Rate 60 measures street lighting usage. The data is in monthly frequency. Comparably. Two separate OLS estimations were done to find the determinants of electricity theft. The regression is specifies as follows: NTLt  Ct  PSmComt  PLgComt  PInd t   t (2) where the P is an indicator for the productive sector. small commercial sales. Nontechnical losses were then regressed on each rate class. Results The patterns of nontechnical losses and the sales in each rate category mirror the patterns of the cost of living. nontechnical losses were at its lowest (Figure 2). which is proxied here by the consumer price index (CPI). In the first estimation. the government department primarily responsible for setting energy policy in Jamaica. Sales to street lighting were not included in the regression since it is highly unlikely for such activity to be engaged in the fraudulent extraction of electricity. Rate 50 measures sales to industrial firms. This suggests that there is some substitution for 9 . and also includes large hotels and water generation.measures sales to large commercial firms. large commercial sales and industrial sales. In periods of a relatively low cost of living. excluding residential sales. electricity sales were at its highest (Figure 1). nontechnical losses were regressed on residential sales. The utility company submits these data regularly to the Ministry of Energy and Mining. The regression is specified as follows: NTLt  Ct  Re st  SmComt  LgComt  Ind t   t (1) The second estimation was done to determine which productive sectors of the economy can best explain the movements in electricity theft over time. Each productive category was first reclassified according to the most suitable rate class.

This was necessary because performing OLS estimation on series that contain unit roots lead to spurious regressions.2 -10 -10 -.2 5 5 .2 5 5 .3 . 10 10 .2 .1 -5 -5 -.1 0 mgen_ mres_ eCPI eCPI 0 0 0 -. Before OLS estimation was applied.2 -5 -5 -.1 -.2 -. each series was first differenced.2 .6 1992m1 1994m1 1996m1 1998m1 2000m1 2002m1 2004m1 2006m1 1992m1 1994m1 1996m1 1998m1 2000m1 2002m1 2004m1 2006m1 period period mpow_ eCPI mlgpow_ eCPI Figure 3: Electricity sales compared with CPI (detrended and seasonally adjusted) Each series was tested for and found to have unit root.4 .1 0 mlgpow_ mpow_ eCPI eCPI 0 0 0 -.4 1992m1 1994m1 1996m1 1998m1 2000m1 2002m1 2004m1 2006m1 1992m1 1994m1 1996m1 1998m1 2000m1 2002m1 2004m1 2006m1 period period mres_ eCPI mgen_ eCPI 10 10 . 10 .2 -10 -10 -. buying and stealing electricity which is heavily influenced by the general cost of living in the society.4 -.

The sales in both these categories also are strongly correlated. This could continue until the consumer is able to pay to be formally reconnected or the consumer is caught. 11 .5 -5 -10 -1 1992m1 1994m1 1996m1 1998m1 2000m1 2002m1 2004m1 2006m1 period mloss_ eCPI Figure 4: Detrended Nontechnical Losses and CPI monthly Column 2 of Table 1 shows the results from the regression depicted by equation 1. In the first case. The substitution effect remains the highest for the residential customers and the small commercial customers.5 5 0 mloss_ eCPI 0 -. the consumer will still have a high demand for electricity regardless of the price. 10 . Since electricity demand is near perfect inelasticity. This substitution represents the consumer’s decision to steal or to buy electricity for each month. a consumer might be disconnected for nonpayment of his electricity bill. This might provide an incentive to the consumer to begin fraudulent extraction of electricity in order to meet hi demand. There are several possible reasons for this substitution.

236) Small Commercial -1.85 --------- (0.40 (0. 12 .109) (0.65 Regressands Residential -1.261) Constant 0. which uses the more reliable employment data over the national accounts data.00 (0. The large commercial and industrial customers also participate in some substitution. However. then it is very likely that he rotates his decision to steal versus pay for electricity each month.184) (0.42 (0. plus the possibility of more reasons will be explored more in upcoming research.00) Secondly. though not as large as the residential and small commercial customers. a consumer that is connected by means of illegal hooking will continue to steal as long as he is not connected. All these reasons.Table 1: Results from OLS estimation Regressor By Electricity Sales By Employment Activity Nontechnical losses R2 = 0.0113) (0. a customer that is continually stealing electricity by means of meter related fraud is thought to be stealing a constant share each period.02 0.43 (0.572 0. because this method of theft is most easily detected.149) (0.0014 0. Finally.389) Industrial -0. All coefficients are statistically significant. Column 2 shows the regression as per equation 2.137) Large Commercial -0.77 -0.

was implemented to regularize persons involved in illegal hookups. in 2003. For future work. 13 . the data shows that theft definitely occurs in all rate class groups. there will be a test of a policy that. Results from the second regression also show that the small commercial sector is contributing to electricity theft.Conclusion So far. It has its strongest effects in the residential and small commercial groups. This means that the policy to deal with electricity theft must allocate efficiently across groups according to each group’s contribution to electricity theft.

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