Fuel cost

The fuel cost component in the tariff is based on the average fuel oil price in the previous three months. For example, the average fuel oil price in Apr - Jun 2009 was used to set the Jul - Sep 2009 tariff (see Chart 2). The electricity tariff formula helps to smoothen out any large swings in the fuel oil markets and will lead to electricity tariffs that are reflective of prevailing market conditions.

While Singapore's electricity is mainly generated from imported natural gas, the prices of natural gas (which are determined by commercial contracts) are indexed to fuel oil prices. This is the market practice in Asia for natural gas contracts. Hence, if the prices of fuel oil increase by 10%, natural gas prices would also increase by 10%.

Non-fuel cost

The non-fuel cost, which reflects the cost of generating and delivering electricity to our homes, comprises the following:

1. Power Generation Cost

   This covers mainly the costs of operating the power stations, such as the manpower and maintenance costs, as well as the capital costs of the stations.

2. Grid Charge

   This is to recover the cost of transporting electricity through the power grid.

3. Market Support Services (MSS) Fee

   This is to recover the costs of billing and meter reading.

4. Power System Operation and Market Administration Fees

   These fees are to recover the costs of operating the power system and administering the wholesale electricity market.