An "honour system" or visual inspections are not the only two options.
Detecting tapping-off points is possible using a time domain reflectometer (TDR). This is a measurement instrument that uses transmission line physics to determine locations and types of "impedance discontinuities" (such as illegal taps) on a transmission line.
Operating principle
TDRs work by sending a "ping" of energy into a transmission line and watching the "echoes" that come back. The transmission line can be an optical transmission line (i.e. an optical fibre) or, in our case, an electrical transmission line (a overhead power line or underground power cable.)
This works because signals will partially or fully reflect off any discontinuity in a transmission line. A "discontinuity" in this case could be the end of the line (open circuit, short circuit, or terminated in a load), any tapping-off point, or any change in impedance.
The TDR works by analysing the length of time between sending out the signal and receiving it back, so it can tell you the physical distance between the instrument and the source of the echo. This can be done to a precision of centimeters.
Normal uses of TDRs
The main use of TDRs is to detect faults on cables or optical fibres.
Say that electric waves propagate at 0.66c (~200,000 km/sec) you have a 100 kilometre long wire, open circuit at the far end. If you send a pulse down one end of the wire, you would expect the echoes to bounce off the end of the wire and return in 1 millisecond (200km round trip distance.)
If you send a pulse down this 100km wire and the reflection comes back in 0.4 milliseconds, this tells you that there is a discontinuity 40% of the way down the wire (i.e. around the 40km mark.) Further analysis of the magnitude and shape of the echo can tell you what kind of discontinuity is present at that location, i.e. a complete break, a kink, corrosion, tapping-off point, splice, etc.
This is widely used in the electrical industry to locate faults on long cables. It's also used for the same purpose in telecommunications, to diagnose faults and (oddly enough) to locate surveillance wire taps.
Detecting illegal power line tap-offs
A power transmission line obeys the same physical principles as a telecommunications cable or an optical fibre, so in theory, TDR can be used to locate illegal tap-offs from a power line.
This idea isn't new or novel - there is at least one mob selling commercial products that detect illegal power line taps using this method. I note the Megger CFL510G instrument is a general purpose instrument intended for fault-finding on telecommunications equipment so it probably requires disconnection of the mains power before use.
To answer your original question, I would guess that using TDR to detect power theft on a large scale is technically possible but too expensive.
- The distribution authority would have to send men around to every neighbourhood to perform periodic TDR testing. You have to pay their wages and equipment.
- Depending on the particular instrument, using it might involve disconnecting the consumer's power. This would be both unpopular and expensive (the distribution company gets paid $$$ based on how many kilowatts you consume, and disconnected customers don't consume any kilowatts!)
- The vast majority of people probably aren't stealing power, so you have to balance the cost of finding the power thieves vs. the cost of the electricity they are stealing.
The meter has a voltage coil, or measures voltage in some way, so you are only paying for the energy that passes the meter. This much is fair.
What happens next depends on your equipment, but it doesn't make much difference.
If you run predominantly switch-mode devices like computers, inverter-driven motors, LED lights, then they will take the same amount of power at any voltage. At a higher line voltage, the current will drop, and hence the power wasted in the wiring will decrease. This is probably only a 1% effect.
Resistive loads with thermostats like a hot water cylinder will show no net change - both the power of the element, and the power of wasted in the wires will go up, in proportion.
If you have a lot of light bulbs... your power consumption will go up at higher voltage. While you will get the extra light that you're paying for, you might not have wanted it. If you already have enough lights, 10% more light for 10% more money is just a waste.
There are probably other cases I haven't thought of. Induction motors... transformers.
Best Answer
They can't. They monitor the line and notice that a very small fraction of the produced power doesn't arrive at the transformer at the end of the line. Conclusion: over those several kilometers there's a leakage. There's no way to know where. BTW, the amount of power they lose this way is probably far less than cable and transformer losses.