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7 October 2008, My Paper Make it fairer, more transparent I REFER to last Saturday's letter, 'EMA explains spike'. To the question on why, even though 80 per cent of our electricity is powered by natural gas, electricity prices are pegged to oil prices, the Energy Market Authority (EMA) replied that, because there is no Asian benchmark for gas prices, oil prices are used instead. In other words, it is not the actual cost of raw material (gas) that is used in computing electricity prices. Surely the power generation companies know exactly how much they pay for natural gas. Is it not possible to determine electricity prices more accurately, rather than stick to 'this is what we have been doing all along since 2004, so we will continue to do it'? Another issue this price increase has brought up is transparency. I was unable to find anywhere the formula to determine these prices. Perhaps the power companies should be required to publish their raw material prices, overheads and margins on their websites, so the public are kept up to date. With privatisation of electricity, is there still a need for a 'one price for all' approach? Let the power companies figure out how best to obtain the lowest-priced raw material (using spot, one-month or three-month futures, or private agreements with gas producers) and reflect it immediately in monthly bills. This will allow competition to increase efficiency. EMA should play the role of moderator to ensure there is no cheating or collusion. Like most Singaporeans, I am not asking for subsidies for utilities. I am just asking for fair and transparent pricing. Wong Weng Fai Reply From EMA I REFER to last Tuesday's letter, 'Make it fairer, more transparent' by Mr Wong Weng Fai, and the editorial, 'Power shock: Bring retail competition sooner', on the increase in the electricity tariff. Mr Wong suggested the price of natural gas imported into Singapore should be determined through market competition. In fact, this is happening today. The gas companies buy natural gas from abroad and sell it to the power generation companies (gencos). The price of this gas is not regulated by the Energy Market Authority (EMA). It is pegged to the fuel oil price through commercial negotiation and contracts. In other words, the fuel oil price reflects the actual cost of the gas used to generate electricity in Singapore. The gencos also compete to sell electricity to the market. Large consumers can choose from a range of electricity retailers. But for the domestic household sector, which is not yet open to competition, SP Services will buy electricity from the gencos at cost and sell it to consumers at the same price. This price sets the electricity tariff, which EMA regulates. It is revised quarterly to reflect changes in the fuel oil price. SP Services publishes the basis for the tariff calculation each time it is updated. For example, it used the forward fuel oil price in April of US$83 (S$112) a barrel to set the tariff for July to September, and the price in July of US$115 (S$155) a barrel to set the tariff for October to December. This 38 per cent increase in the fuel oil price between April and July is the reason for the spike in the electricity tariff. The Straits Times editorial suggested the EMA should intervene to hold the tariff constant, despite this increase in the cost of electricity. But this is no different from a fuel subsidy which has proven to be unsustainable in many countries. We agree with Mr Wong on the need for transparency, and will put out more information to help Singaporeans understand how electricity is priced. We are also taking further steps to liberalise the electricity market for households. We have developed the prototype Electricity Vending System (EVS), which allows households to buy electricity from competing providers and price plans. Feedback from the upcoming EVS trial run will allow us to evaluate and improve the system, and ensure its smooth implementation. Hence, our approach is to price electricity properly, while providing focused and targeted assistance, especially for lower-income groups. In the long term, the best way to keep the electricity price down is to make use of competition to drive efficiency gains in the industry, for the benefit of all consumers. |
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