ELECTRICAL DISTRIBUTION INDUSTRY DELEGATED
Within the Municipal context, Delegated Management is a concept in which the Authority delegates the responsibility
of operating and managing a municipal service to a private undertaking or a joint venture between the parties,
including the community, while retaining the:
• Ownership of the assets;
• Monitoring and control of the services rendered;
• Setting of tariffs of the end user.
ADVANTAGES OF DELEGATED MANAGEMENT
The greatest advantage of Delegated Management is of 'service to the community'. The community is assured of a
quality- and cost-effective service. The specific advantages of Delegated Management include:
• The assets of the municipality are not transferred to the Utility Company, but only utilised by the company.
• The utility company provides additional assets for the municipality as and when required.
• The utility company maintains the assets of the municipality.
• Upon the expiry of the contract, the assets (i.e., old and newly provided), remain with the municipality.
• Rate setting remains in the hands of the municipality.
• The Utility Company must perform against contractual standards set for quality of service rendered, which is
monitored by the municipality.
• As the improvement of services to required levels is a protracted process, the delegated function normally
extends over a minimum of 10 years. Long-term contracts facilitate the utility company's commitment to:
- Maintaining or improving the community's quality of life.
- Offer the existing municipal employees preferential employment opportunities. Appointment conditions
being no less favourable than those enjoyed with the municipality.
- Results and quality service.
- Staff training and development programmes. Those employees who take advantage of these development
opportunities are assured of upward mobility within the company.
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Generally, through Delegated Management, experienced managers who have been exposed to private business
practices are able to train Local Government employees to apply a free market approach to customers.
Performance can therefore be uplifted to required standards. Decisions on matters relating to basic services are
made timeously and are promptly executed.
APPLICATION OF DELEGATED MANAGEMENT CONTRACT
The advantage of the Delegated Management approach is its flexibility, with contracts being easily adapted to the
specific local conditions. A hybrid of both Affermage and Concession contracts is becoming increasingly common,
as is the case of the first Delegated Management contract signed in South Africa in June 1992.
The diagram below shows the contractual options available for structuring contracts with the private sector.
RANGE OF CONTRACTUAL OPTIONS
level of Private Company
Contractual Arrangements Ownership Arrangements
Operations Operation &
Operations & Maintenance
with working capital
Investment & operation
(Concession or B.O.T.)
Increasing level of private
Ownership & Operation
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THE DELEGATED MANAGEMENT CONTRACT
• “Authority” being the Municipality.
• “Operator” being the Utility Company.
The Operator’s responsibilities shall be :
• Authority shall obtain all authorisations on behalf of the Operator.
• Exclusivity to provide service granted to Operator.
• Authority enters into an agreement of lease with the Operator.
Scope of Works
The Operator's responsibilities shall be:
• Management, operation and maintenance of the electrical plant and networks.
• Rehabilitation of existing systems to render them operational and efficient and minor modifications or
additions and/or operational procedures to improve the performance of the system.
• Expansion of the plant and network subject to authorisation by the Authority.
• Continuous replacement whenever necessary because of normal wear or accidental breakdown of parts of
Management, Operation and Maintenance of the System
• Management to be according to the standards of a reasonable and prudent Operator.
• The whole system to be maintained in a good operating condition and state of repair.
• The Operator bears the costs for the proper performance of the facilities.
• The Operator shall deliver electricity permanently in compliance with South African standards.
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Operator Bears Costs for Maintenance / Repair and Replacement
The Operator bears the financial responsibilities for repair and replacement of:
• All electromechanical equipment.
• Poles & structures, metering apparatus, etc.
• Minor repair of civil works such as paint work, substation maintenance, etc.
• Street lighting equipment.
Costs to the Authority
The Authority pays the Operator monthly, based on the following:
• A fixed charge which will cover all fixed operational and financial costs.
• A variable charge that will apply to the metered energy consumed by the consumers and/or sold in bulk as
the case may be. It will cover all variable operational costs.
• Variable charge for bulk energy purchases.
The monthly amount due to the Operator in terms of the agreement will be governed by an agreed and fair
price escalation formula.
Finance for Capital Works
Finance for the expansion and upgrading of the system can be included as an option provided by the operator,
at extremely attractive rates.
The personnel of the Authority associated with the system prior to the agreement are offered a similar position
within the Operator's company.
Their position, salary and other working conditions are at least equivalent to their previous position with the
The duration of the contract is 10 to 30 years (depending on the operator’s contractual commitment) and may
be extended in duration and/or scope mutual agreement.
Breach of Contract
Should either party be in breach of contract in any material way, the party giving notice of breach shall be
entitled to cancel the contract without prejudice.
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Voluntary Cancellation of Contract by the Authority
The Authority, once the term of the first half of the contract period has expired, may at its sole discretion cancel
the contract subject to two years notice and cancellation indemnity payment.
Such contracts have been in operation for almost 5 years in South Africa and are running well. The costs to
the Authority have been reduced substantially
The Delegated Management contract applied in South Africa and World-wide has resulted in a "win win"
relationship between the Authority and the operator free of conflict. This can be verified through a visit to
Queenstown and Stutterheim in the Eastern Cape or Buenos Aires in Argentina, where the concept is being
applied to a large metropolis.
CUSTOMER MANAGEMENT PROGRAMME
A Customer management programme should be designed and executed to meet the needs of the community so
that the service provided will be paid for.
Experience has shown that such a programme should ensure that the following critical elements are in place and
• Communication to gain understanding and acceptance and involvement with the community on the service to be
• Tariff structure agreement to match affordability and cost of the service provided.
• Technical requirements to meet the service agreement.
• "Zero defect” Administration of consumption measurement, invoicing and revenue collection.
The management of the programme must ensure that all four critical elements are continuously achieved so that
there will be no valid reasons for non-payment.
It is essential that the management of the service be not influenced by the politics of the day.
This can only be achieved by delegating the management of this function to the private sector. A reality brought
home after over 100 years of international experience.
PRACTICAL ASPECTS OF A CUSTOMER MANAGEMENT PROGRAMME
• The operator provides the managerial and technical expertise to achieve a cost-effective service to meet
the needs of the residents.
• The residents support the customer management programme by using and paying for the service in a way
which may be aligned to affordability.
• The Municipal Authority continues to subsidise the service until full cost recovery is achieved.
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• Put the house in order
Before any customer reinstatement programme can be undertaken, it is essential that the customer
database and administration be put in order.
Launch A Community Reinstatement Programme
Such a programme will have to be undertaken under the guidance of the community so that the necessary
trust and mutual respect can be built up and a sense of civic responsibility fostered within the community.
An agreed tariff structure based on local demographics and costs are agreed with the community.
The programme will be implemented once all the critical elements of customer management have been agreed
and communicated to all concerned.
RESPONSIBILITIES UNDER A CUSTOMER MANAGEMENT PROGRAMME
The Operator’s Responsibilities
To provide a reliable and sustainable service to the residents by taking over the staff of the Authority and the
• Training of staff;
• Implementation of the customer management system covering:
- Public relations and awareness.
- Meter reading.
- Customer data base with correct information for communication and invoicing.
- Assistance in defining a tariff strategy.
The Residents' Responsibilities
• To use electricity affordably.
• Reporting of supply outages and other problems promptly.
• Reporting of vandalism.
• Co-operation with the maintenance crews.
• To progressively pay for services in line with improvement in the standard of living and agreed tariff
structure for the community.
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The Municipal Authority's Responsibility
• Setting of equitable tariff structure.
• Subsidising the service cost until full cost recovery is achieved.
• Financial security for the upgrading and extension of the service network as required.
• Controlling the quality of service rendered by the operator to the community.
CUSTOMER MANAGEMENT PROGRAMME PROPOSAL AND CHARGES
From the customer service need evaluation, the operator will submit a proposal of what is to be done to
implement and run an effective customer service programme for the community.
This will include capital requirements and possible financing packages as well as the operator's charges to
implement and maintain the programme.
Charges to the Authority, from the operator, would be as follows: -
• A fixed monthly sum governed by a price escalation formula applicable for the Customer Management
• A variable rate covering the costs of the day-to-day variable costs associated with the customer
THE BENEFITS OF DELEGATED MANAGEMENT
The benefits can be described under the following broad headings:
• Introduction of finance by the Operator with extremely attractive conditions allows the Authority's capital to
be utilised for other projects. The introduction of finance could also include raising additional finance
against existing assets.
(As the Operator can function outside the bounds of municipal restrictions, he is free to access finance on
the world market and from international aid organisations. In this manner funds may be obtained with
extremely attractive conditions and interest rates.)
• The Authority’s cash flow will be far more predictable due to budgeting with known figures.
• Accurate costs are established and records maintained without the grey areas of cross-subsidisation.
• Escalation is limited to a formula computed with independently produced indices, which are pre-negotiated
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• Competition ensures that cost-effective methods are used in all aspects of operation, maintenance, plant
upgrading and repairs, thereby ensuring lower operating costs and subsequent optimal costs to the
• The Operator's performance criteria ensure efficient and timeous investment in repairs, etc, as failure to do
so impacts significantly on his ability to meet the same.
• Accurate unit costs are established to determine an appropriate transparent tariff structure.
• 'Red Tape' is reduced to a minimum to ensure rapid response to problems.
• The recovery of costs through an effective customer management/rehabilitation programme.
• Reduced working capital for the Authority.
• The Authority only has to deal with the Operating Company as opposed to several departments, sections,
• Time consuming liaison with Workers' Unions, etc, will be carried out by the Operator and will no longer
involve the Authority.
• The Authority is freed from an enormous amount of administrative work, i.e., salaries, personnel
administration, asset control, and statistics, to devote its creative attention fully to the development of the
region and its community.
• The Operator has a long-term commitment and consequent vested interest in the optimal operation of the
• The Operator has a larger specialist resource pool than the Authority and the resultant flexibility to provide
quality operational staff, to complement or assist the Authority's specialised personnel and expertise.
• The Operator offers staff a longer and more varied career path and opportunities for advancement than the
• Ongoing transfer of 'state of the art' technology to operating staff assures the Authority that his asset is
being operated to the most up-to-date standards.
• The Operator's control of day-to-day management allows the Authority's personnel to devote themselves to
policy matters and strategic planning.
• The Operator will make it his responsibility to be aware and supportive of the environmental issues
associated with the area.
• The continuous provision of reliable electrical services to meet demand and standards ensures that
City/Town is not prejudiced.
• With the aid of in-house and international technological resources, the Operator will be in a position to
analyse, understand and apply the requirements for the provision of safety practices that are economically
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• The service will be provided on an unbiased basis, through the provision of customer-oriented service
supplied by a non-political organisation.
• With accurate per-unit costs, a transparent tariff structure can be applied.
• The proven community reinstatement programme will establish credibility and trust between the community
and the Authority.
• The Operator offers a broad technical expertise not normally found in an Authority. The Authority deals with
one body and not a range of disciplines.
• The Operator has access to local and international expertise that is at the forefront of modern technology.
(The Operator can draw on the skill of the vast resources of research engineers, scientists, technicians and
operational experts). This facility encompasses basic and analytical research, as well as practical research
related to process, equipment, network control and customer services.
SUMMARY AND CONCLUSION
In conclusion, the proposed utility company is well placed to provide Municipalities with a full package of facilities
and resources to establish, operate & maintain an electrical utility. We can offer, inter alia:
• A highly motivated, trained and experienced management team.
• Proven experience in the design and construction of a new electrical network, making use of experienced
conventional, emergent, and community-based contractors.
• Access to the expertise and experience of delegated management of electrical utilities in many first and third
world environments world-wide.
• The experience of the successful integration of community involvement into project management.
Kindly note that the options contained herein are intended only as an introduction to delegated management. Before
a firm proposal can be tabled, we need to negotiate the scope perform research on specific requirements. As stated
in our introduction, we believe that delegated management is the only viable option for Municipalities given the state
of the Electrical Supply Industry in South Africa.
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MANAGEMENT SERVICES FOR THE ELECTRICAL DISTRIBUTION
Ballenden & Robb Electrical Management Services (subset of Ballenden & Robb) was established because of
the changes in the electricity distribution industry (EDI) and the need within local authorities for management
assistance. Ballenden & Robb is made up of some of the role players involved in the establishment and
implementation of the first successful Public Private Partnership (PPP) consisting of a Transitional Local Council,
Eskom and private Industry. Based on this experience as well as our roots in municipal undertakings on the one
hand, and consulting engineering on the other hand, we believe we can tailor a service to meet your needs.
Ballenden & Robb is classified as a Black empowerment firm as 50 % of the shareholders and directors of the
company are persons from previously disadvantaged groups.
CHANGES IN THE EDI
The electricity distribution industry in South Africa is currently in a state of flux.
This is due to inter alia the following:
• Changes in Local Government functions and structures.
• Changes in Legislation and Regulations.
• Changes in Community and Customer needs.
• The need for Electrification.
• Economic factors necessitating the optimum use of resources.
• The control and management of electricity losses and revenue protection.
• The need for community participation and labour stability.
Local Government has a constitutional right to be the controlling authority of the distribution of electricity, and
although Local Authorities do not have to perform the function themselves, they need to ensure that an optimum
service is delivered. Local Government further needs to fearlessly guard it’s income, which it historically made from
electricity in order to subsidise other non-profit community services. In line with the SALGA position, Local
Government must ensure that they play an even bigger role in a properly restructured industry as the electricity
Local Government need not be and in many cases should not be the service provider. On the other hand, Local
Authorities can, as in the past, also perform this function successfully. This could be achieved via processes
such as in-house delivery, contracting out, PPP’s, delegated management or a combination of such processes, in
order to provide the best services to communities.
Ballenden & Robb can provide tailored services to support, manage or enhance present service delivery
structures, and can also create new structures that might be required. Should a present structure have
inefficiencies as a result of a lack of or a misdirection of capacity, this can be addressed via the process.
Ballenden & Robb and it’s staff have been the leaders in the field of empowering and using community based
contractors throughout South Africa and in specific, Eastern Cape. An approach of closely working with existing
staff and structures at all levels as well as with communities has been practiced and ensures success.
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BENEFITS OF DELEGATED MANAGEMENT
Using a defined process, i.e. whether a full delegated management option or only specific services, the Local
Authority shall retain it’s electricity networks, keep control over tariffs and can, subject to affordability and
determinations by the NER and control it’s own profits from electricity. Local Authorities further retain their
distribution licenses and ensure the well-being of their communities. The potential savings and increased
efficiencies far outweigh any additional costs. This process further empowers existing staff of the Municipality.
SPECIFIC ELECTRICAL MANAGEMENT SERVICES OFFERED
a) Legal responsibility in terms of the OHS Act.
b) The management of engineering functions and liaison with consultants:
• Tariff studies and recommendations
• Tariff applications to NER
• Preparation of tender documents and contract management
• Full management of the undertaking (Delegated Management) or;
• Management of community based contractors. Our training programme for first line maintenance
contractors has been approved by the Dept. of Labour.
• Maintenance plans and execution of such plans
• Optimising of demand management (ripple control)
d) Revenue control
• Management and execution of losses control
• Pre-payment vending management and control
e) NER documentation and reporting
• NRS 047 and 048 reporting and implementation
• NER questionnaires
• NER funding applications
f) Metering and load profiles
• Key financial indices
• Performance of networks
• Performance of staff and contractors
h) Community awareness and information services
i) Management Information Systems
• Fault Reporting Centres – software and statistics
• Consumer Statistics - info gathering and software
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Since every electricity distributor is different, the services and cost thereof can only be determined after an
investigation and negotiation with the service authority. There is no risk involving Ballenden & Robb in specific
functions as the service authority can terminate our involvement should results not be achieved.
PROPOSED SOLUTIONS FOR MANAGEMENT SERVICES
For an Electrical Distribution Industry (EDI) Management Services project to succeed full support of the
community at all levels is required. In order to achieve this we propose and implement the following:
Community Organisation Level
• Identify key role players like Political Organisations e.g. SANCO Steering Committees etc.
• Form Joint Ventures (where required) with the identified organisations.
• Sell the process to the community.
• Ensure the money generated is used for community development projects.
Loss Management at Grass Roots Level
• Community members are employed as loss control officers.
• They will be expected to patrol and check for illegal connections, tampering and investigate cases.
• These are rewarded on a commission basis based on the improvement of losses in the defined areas.
• Penalties shall only be applied to illegal consumers after an agreed cut-off date.
• A current limiter connection (20 Amps) is made available free of charge to all identified illegal consumers and
any new consumers as an incentive for legally getting connected.
• For consumers requiring a larger supply, a fee be charged in accordance with the department’s going rates.
• Vending be handled by local vending agents.
• Update and extend the vending system where required to provide a reasonable level of service.
• When new customers are connected, approximately 1500 - 2000 consumers are assigned per vending point.
For effective loss control we believe the following standards should be applied:
• All non-split & STS meters should be replaced if possible.
• Change standard meters to split meters and provide split meters for new customers.
• Network to be upgraded to acceptable standards using Council staff.
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REVENUE AND REVENUE LOSS MANAGEMENT
Ballenden & Robb Management Services adopts an integrated approach for revenue management including
methods of predicting tampering by consumers.
Generally, the Council is responsible for:
• The whole process of revenue management.
• Establishment of Vending Stations.
• Money Collection and Security.
• Tamper Reporting and Response.
REVENUE MANAGEMENT : EASYPAY® ACCOUNT PAYMENT AND
To assist Councils, Ballenden & Robb Management Services has been effectively involved in implementing
EasyPay® account payment and prepayment systems.
For the utilization of EasyPay® as an account payment and prepayment vending service, utilities and local
authorities are required to enter into EasyPay® Receiver contracts with Transwitch Services.
EasyPay® enables an interface between EasyPay® and the Receiver’s billing system and/or System Master
Station (SMS). It is the responsibility of the Receiver to ensure that the preferred / selected billing system and
SMS supports the EasyPay® interface.
EasyPay® will in turn provide for the acceptance of Receiver account payments and the issue of prepayment
electricity by EasyPay® Collectors. EasyPay® Collectors consists of retailers such as Pick’nPay, kiosk
providers, the Internet (www.easypay.co.za), etc. Many new Collectors will be utilized in future with Spar, Seven
Eleven etc. being priorities currently. In many cases EasyPay ® Collectors will make the use of traditional Credit
Dispensing Units (CDU’s) obsolete.
EasyPay® costs are charged as a fee or commission per transaction. These are payable by the Receiver, with
EasyPay® being responsible for paying part of these fees to the Collectors for services rendered.
REVENUE LOSS MANAGEMENT
Before discussing the Revenue loss management, we would like to briefly discuss why this has become an issue of
In the days before pre-payment meters, meter readers used to visit each consumer once a month and would
generally notice where any tampering was occurring. They were experience and had a meter book with them
from which they could compare the reading to previous ones. Nowadays they are under pressure to improve
productivity and are merely robots who punch readings into a hand-held device. With the introduction of pre-
payment meters of course, meter readers never visit these consumers.
Consumers are becoming more sophisticated in the way in which they tamper. In the urban areas we have even
come across “agents” who would “modify” your pre-payment for a fee of R 50.00. They change components on
the PC board, cut tracks, etc. in such a manner that the meter appears to be operating normally.
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The culture of non-payment is a huge problem in certain areas and will require the political will of the Council and
dedication of officials to turn it around.
Often electricity undertakings have not seriously addressed the problem of tampering due to lack of
understanding, lack of resources, and the question of divided responsibility between the Town Treasurer and the
Town Electrical Engineer.
The lack of management tools to assist with loss control did not help matters.
TOOLS TO ASSIST WITH LOSS MANAGEMENT
The suppliers of pre-payment generally provide some for m of variance reporting in their SMS software. However,
these have generally been somewhat rudimentary and were rarely used due to a lack of confidence therein.
The billing systems generally also provide some form of variance reporting for conventional meters, but suffer
from similar problems.
Our clients investigated the availability and characteristics of third party Loss management software and found
that what was available at that stage lacked the sophistication and focused only on pre-payment metering.
Ballenden & Robb developed application software i.e. “DataMan” marketed separately under the “Manelec
Services” banner, that is more tailored to suit our Clients’ needs.
SPECIFICATION FOR A LOSS MANAGEMENT APPLICATION
The following criteria was used in specifying the Loss Management Application:
• The Loss management application does not only manage domestic pre-payment consumers, but all
electricity consumers. It is user-friendly, Windows 98/NT based and simple to use but also provides a high
level of sophistication and user-intervention where required.
• The application not only analyses consumption data, but also takes other inputs into account when indicating
possible tamper cases.
• This is not merely a prediction tool, but also a management tool. It records the results of tamper inspections
and uses this information for future predictions. At the click of a mouse, it gives the user a record of a
consumer’s consumption both numerically and graphically, etc.
• Further features are:
- Management of the database for the consumer survey information.
- A meter record management application for the metering section.
- A substation database for substation information and check-meter readings.
- Seamless integration with the Client’s GIS database and fault reporting centre database.
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CLASSES OF INDICATORS
There are various factors one could use to try and sniff out tampering. We have called them indicators, which we
have defined as “some type of measurement that indicates a deviation in a consumer’s electricity usage when
compared to his past consumption, a group average or check-metering.”
• Internal Indicators are indicators based solely on individual consumption data and analyse trends from this
• External Indicators rely on some additional external data and compare this to consumption.
No or Low Sales
This is a printout of consumers with an average consumption of less than 10kWh over the last three months. We found
10kWh to be an optimum figure to allow for the very small consumer and a three-month period to eliminate false alarms
due to consumers being absent or missed meter readings.
As a continual variance in consumption could be an indication of tampering, the system calculates the statistical
variance for each consumer over the last twelve months.
In this case the consumption for each consumer for the last three months is compared to the same period in the
The results of the consumption variance and reduced consumption analyses are combined into a composite pattern
SHORTCOMINGS OF INTERNAL INDICATORS
These indicators are based on deviations in historical consumption patterns. If a consumer has been tampering all along,
these indicators will not pick it up, particularly if the consumer is consistent in what he does. Ballenden & Robb
therefore defined external indicators to determine if the level of any individual consumer’s consumption is acceptable.
Undertakings with GIS or scheduled maintenance programmes already have their consumers linked to substations, so
that it is relatively easy for them to group their consumers per substation. Some SMS systems also have this info. Our
application also has a facility to manually link consumers to substations if necessary. Once this is done, kWh sales can
be compared to substation check metering and you can determine in which areas theft is most prevalent.
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In theory, consumers living in particular neighbourhoods can also be classified into similar socio-economic groups.
Therefore their consumption patterns and levels should be similar. This Indicator compares each domestic
consumer’s consumption to the average in his area to check for large deviations.
The most accurate, and in practice the most successful method of determining where consumers are tampering, is to
estimate the energy consumption of a particular consumer and compare it to his metered consumption. To do this a
survey is undertaken and the quantity of each appliance and the number of inhabitants are determined for each dwelling.
Using applied mathematics, the application then determines the optimum usage factors for each appliance and an
“inhabitant” factor within a socio-economic group. An individual’s appliances and number of inhabitants are then
multiplied by these factors for a calculated consumption. The application then compares this theoretical figure with his
The individual indicators all are attempting, by different means, to achieve the same goal of identifying possible
tampering. On it’s own an individual indicator may be accurate or it may not be. However, if two or more indicators
indicate that a consumer may be tampering, the likelihood that he is in fact tampering, increases.
The more accurately you can pinpoint tampering, the more efficient your loss management can be. It may also be
confusing to the users to have so many different indicators to choose from when deciding on which consumers to
select for tamper inspections. It therefore makes sense to have an option to combine the individual indicators into a
The difficulty with this composite indicator is deciding on the weighting for each individual indicator in the equation. The
ideal weighting factors may differ from undertaking to undertaking, change over time and the user may want to fine-tune
them as he gains more experience. We have thus set default weighting factors within the application, but give the user
the freedom to change them where required.
Our application study results have been very encouraging. Where tampering was predicted by the application and
tamper inspections were done, our clients found valid reasons for deviating consumptions, e.g. tampering, a faulty
meter, long absence, etc. Unfortunately, most Clients have only recently started using the application’s loss
management tracking functions and therefore statistics on tamper inspections are currently being compiled. What
has been revealing is the financial consequence of their overall tamper drive.
For example, a Client’s overall system losses were 5.4% for the last eleven months compared to 8.01% for the same
period the previous year. This equates to a net increase in revenue in the amount of R2.57 million, or a saving of
27.6kWh or R6.69 per non-bulk consumer per month. Although we can’t cannot claim that our application alone
resulted in this increase in revenue, it does show what can be achieved with a focused loss management drive. If
you can improve your income by this magnitude it certainly makes economic sense to manage Electrical Distribution
We are confident of further Electrical management improvements i.e. as substation meter reading data become more
readily available, more consumer surveys can be completed and the monitoring system fine-tuned.
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