Electricity in Singapore: More tariff revision explanations

Tariff revision no benefit to power generation companies
Letter from Jenny Teo
Director, Corporate Communications
Energy Market Authority
Today Online 28 Oct 08;

In “Is this the best deal?” (Oct 20) Mr Conrad Raj suggested that the increase in electricity tariffs had benefitted power generation companies (gencos) and Singapore Power (SP) at the expense of consumers. But he has confused the issues and painted a distorted picture.

SP’s electricity infrastructure subsidiaries in Singapore are regulated by the Energy Market Authority and earn a Return on Total Assets (Rota) of about 6 per cent. This is a reasonable return to finance the investments needed to expand and maintain our electricity grid infrastructure. In comparison, the Rota earned by other infrastructure companies overseas varies between 6 per cent and 15 per cent.

The regulatory framework is also designed to promote system efficiencies, so that the savings generated can be passed on to consumers. For example, SP has announced a reduction of 8 to 11 per cent in the charges for transporting electricity from Oct 1, 2008.

As for the gencos, they are subject to competitive pressures in an open market environment. Investors are free to build new plants and compete in the electricity market, as companies like Keppel Merlimau Cogen and Sembcorp Cogen have done in recent years.

The gencos have every incentive to innovate and provide electricity at competitive prices. The divestment of the gencos will attract new players into the industry and continue to keep a downward pressure on price. There is therefore no basis to link the divestment with the tariff revision.

Mr Raj’s suggestion that the gencos purchase their fuel at “the same time and (at) exactly the same price” is inaccurate. The gencos negotiate their own commercial contracts for natural gas with the gas suppliers. Every contract is different, but they follow the industry practice of indexing the price of gas to the price of fuel oil.

Changes in this fuel oil cost are reflected in the electricity tariff every quarter. As the tariff is set in advance using the forward fuel oil price, there is a three-month time lag between the oil price movement and the actual tariff revision. Alternatively, if we had used the spot oil price to compute the tariff, it would have been higher in 11 of the 16 quarters since 2004. Hence, under the present formula, households have generally paid less for their electricity.

For this quarter, the forward fuel oil price had risen sharply by 38 per cent. All of the increase in the tariff goes into paying for this higher cost of fuel. The tariff revision does not benefit either the gencos or SP.


We are a power service provider
Role is to transport energy from power generation companies to the end user
Letter from Ho Lai Fung
Director, Corporate Communications
Singapore Power Ltd
Today Online 28 Oct 08

We refer to the article by Mr Conrad Raj “Is this the best deal” (Oct 20) and would like to put things in perspective.

Following the liberalisation of the electricity market, Singapore Power (SP) is no longer in the business of generating electricity. Electricity generation is undertaken by five generation companies (gencos), namely Senoko Power, PowerSeraya, Tuas Power, SembCorp Cogen and Keppel Merlimau Cogen. SP does not own any of the gencos.

The role of the SP Group in Singapore is confined to:

• The transportation of electricity from gencos to end-users through the transmission and distribution network by SP PowerGrid;

• The provision of market support services to the electricity market, viz meter-reading, billing and payment collection, by SP Services. Regulated by the Energy Market Authority, SP Services purchases electricity from the gencos and then sells the electricity at cost (with no mark-up) to small businesses and households.

For providing these services, SP receives 5.17 cents (17 per cent) of the 30.45 cents per kilowatt hour tariff applicable to households today. This fee of 5.17 cents per kilowatt hour does not fluctuate with the changes in the price of fuel. Over the last six years, SP has reduced its share of the average tariff by 24 per cent. This reduction is made possible because SP has achieved operational and financial efficiencies, and shared the savings from these efficiency gains with all consumers.

The increase in the tariff this quarter is used to meet the higher cost of fuel needed to generate electricity. Neither SP nor any of its subsidiaries benefit from the tariff increase.

With regard to Mr Raj’s comment that SP Group made a “whopping” profit of $1.09 billion, we would like to clarify that this profit included the results of our international operations and the sale of investments. For SP’s regulated electricity business, the after-tax profit was $423 million, which represents a return of about 6 per cent on our total Singapore assets of about $9.7 billion. On the strength of this performance, SP will have to secure financing to invest another $5 billion in the Singapore electricity grid over the next 5 years.

Such investments are required not for the sake of “surpassing our peers” or winning international accolades, as Mr Raj suggests. Rather, these investments are needed to meet growing electricity demand and to replace ageing equipment. Ultimately, this will help to support our economy and to ensure that all Singaporeans can enjoy peace of mind with a reliable supply of electricity to their homes.

Pricier power? Life goes on
How low-incomefamilies are coping withelectricity price hikes
Neo Chai Chin, Today Online 28 Oct 08;

TOA Payoh resident Mdm Noorhayati used to top up her electricity account with $10 every five days, but now she does it every three to four days.

The dressmaker and her four children, aged 12 to 27, live in a two-room rental flat, and have been on the Pay-As-You-Use (Payu) electricity metering scheme for the last “two to three years” after falling into arrears with SP Services.

When electricity prices rose by 21 per cent on Oct 1, Mdm Noorhayati, 51, was caught off-guard. “I said, ‘How come (the top-ups get used up) so fast?’ and my son told me, ‘Mum, it’s because electricity prices have been raised’,” she said.

But the price hike has not led to worse times for Mdm Noorhayati and other Payu households so far, social workers and the Community Development Councils (CDCs) told Today.

This is mainly due to increased Government rebates and subsidies for the poor.

“We do not expect a surge in applications over this month or the next because of the tariff rise,” said a spokesperson from South West CDC. “Residents who apply for financial assistance usually face multiple issues such as loss of employment, loss of breadwinner, unstable income, arrears in HDB instalments and so on.”

Said senior social worker Frances Lee: “Theoretically speaking, yes, there should be an increase in Payu households. But my observation is that their problems don’t happen all of a sudden, and with the Government’s rebates, the end cost to them might not be as great as it’s said to be.”

Electricity tariffs have risen every quarter since April last year, from 18.88 cents per kilowatt hour to 30.45 cents per kilowatt hour now. But the number of Payu households has dropped slightly, from 13,627 in December last year to 13,401 in August, according to SP Services.

Payu is for households whose electricity supply has been cut and are unable to pay the minimum sum required for re-connection. It is also for those who default on their instalment plans. With a 50 per cent increase in the Government’s Utilities-Save rebates this year, households will receive between $120 and $330, depending on their flat types. For one- to three-room flat households, the rebates exceed their estimated bill increases.

The attractiveness of the Payu scheme is that it allows households to top up accounts in small amounts from as low as $10, 20 per cent of which goes towards settling their debts.

“We are better off with Payu, because now we won’t overuse. When my sons play too much computer games, I will ask them if they can afford what they are using,” said Mdm Noorhayati.

Dishwasher Mdm K F Leong, 63, often checks the credit left in her Payu account and cuts electricity usage by turning the lights off at 8pm when her two grandchildren go to sleep. But she sometimes has to borrow $100 to $200 from friends for top-ups, repaying them when she gets her salary.

“We do hear of clients who say friends and relatives are more willing to lend money for something concrete — to top up electricity accounts,” said Ms Lee, a senior social worker with Care Corner Family Service Centre (Toa Payoh).

Frequent Payu top-ups, however, are a problem for those with mobility problems. For such households, Care Corner either appeals to SP Services for standard meters or arranges for Giro payments, said Ms Lee.

Besides rebates from the Government, low-income households also get utilities vouchers from the North West and South West CDCs, while Central Singapore CDC holds budgeting and power-saving workshops.

Central Singapore CDC’s workshops, which include financial literacy programmes, have been held for 4,000 households earning less than $1,500 since April last year. Three in five households have seen a reduction in household expenditure, including on utilities, after attending the workshops, said its general manager Agnes Kwek.