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1 October 2008, The Straits Times Tariff hike goes against common sense I REFER to the report yesterday, 'Electricity bills to go up 21%'. We import almost everything, so we are subject to the vagaries of supply and demand. While we are basking in the new limelight of Formula One races and world attention, only those with high net worth can continue to spend. A reputed local pub reported earnings of $800,000 over the three-day weekend. Did anyone compute the amount spent on electric lights during the three days of F1 races? How can the mathematics of the forward pricing of such a commoditised product as electricity be computed with such flawless accuracy that we now face a 21 per cent price hike from today - the highest one-time increase in seven to eight years - citing reasons of higher oil prices. Associated Press reported that, as of Monday, oil prices sank by more than US$5 (S$7) to almost US$101 a barrel on concerns that economic growth will slow across the globe, despite a tentative agreement in Washington on a US$700-billion bailout package to stabilise the United States financial system.? This information goes against common sense; no wonder a book called The 10 Commandments Of Common Sense is among the bestsellers in the non-fiction category in Singapore. I urge the authorities to review the current mechanics and methodology used to price electricity tariffs. We speak about the liberalisation of energy markets and being more market- oriented, yet we fail consumers on basic issues like this. With this latest tariff revision, households in three-room flats will see their utilities bill go up by $14. Families in five-room flats will pay about $23 more a month, on average, with the price of electricity going up from about 25 cents per kilowatt-hour to about 30 cents. To the man in the street, in these difficult and challenging times, where even basic financial institutions are shaken, every dollar and cent counts. Michael Leong Reply From EMA I REFER to Wednesday's letters ('Tariff hike goes against common sense' and 'Power Points') on the revision in the electricity tariff, and would like to clarify how the Energy Market Authority regulates the tariff proposed by SP Services. Singapore imports all the fuel we need for power generation and the electricity tariff must reflect this cost. Indeed, the cost of fuel accounts for about 60 per cent of the electricity tariff. While 80 per cent of our electricity is generated using natural gas, the price of this gas is tied by long-term contracts to the fuel oil price. This is the market practice in Asia where fuel oil is the substitute fuel source to gas, and sets a natural benchmark for gas pricing. The electricity tariff in Singapore is therefore pegged to the fuel oil price. If the fuel oil price goes up, the electricity tariff will be increased. Likewise, if there is a reduction in the fuel oil price, the electricity tariff will be reduced accordingly, as happened in two consecutive quarters last year. To provide certainty in pricing, the electricity tariff is set in advance for a three-month period based on the three-month forward fuel oil price. For example, the forward fuel oil price quoted last July for delivery between this month and December will determine the tariff for this period. As the fuel oil price increased sharply in July this year, there was a corresponding spike in the July forward fuel oil price for this month until December. This is why we are experiencing a sharp increase in the electricity tariff now. Recently, the fuel oil price has started to come down. If the downward trend continues this month, we can expect a reduction in the electricity tariff for the first quarter of next year. The increase in the electricity tariff has nothing to do with the recent Formula One event. The F1 organisers brought in their own generators and equipment for the race. The electricity tariff was not used to pay for the costs of lighting the F1 circuit. The increase in tariff is also not linked to the privatisation of the electricity industry. On the contrary, the privatisation process has helped to promote greater competition and drive efficiency gains in the power generation companies. This has brought real benefits to all consumers. Despite the substantial rise in fuel oil price over the years, the increase in electricity tariff has been much smaller in comparison. Our electricity price would have been much higher had it not been for competition. |
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