Wong Siew Ying, Channel NewsAsia 21 Oct 08;
SINGAPORE: Senior Minister of State for Trade and Industry, S Iswaran, said the recent 21 per cent increase in electricity tariffs, despite falling oil prices, is not arbitrary.
He told Members of Parliament that the tariffs had been pegged to a 3-month forward oil price, which provides more certainty to consumers.
Distributing a chart in parliament, he said this formula had kept tariffs lower than if the country had pegged tariffs to the daily oil price or spot price instead.
Explaining further, he said the 3-month forward fuel price used in the formula had been lower than the spot fuel oil price in all but five of the 16 quarters since 2004.
He also cautioned against making arbitrary changes to this formula as it would increase regulatory risks, adversely affect investor sentiment and confidence, and ultimately do more harm than good to consumers and businesses.
Mr Iswaran added that the government has introduced measures to help lower income families cope with the rise in electricity prices by offering rebates.
About 80 per cent of electricity in Singapore is generated from natural gas, which is purchased through long term contracts tied to fuel oil prices.
Electricity taxes not pegged to spot oil prices
Valarie Tan, Channel NewsAsia 21 Oct 08;
SINGAPORE: Electricity taxes in Singapore are not likely go down despite the drop in oil prices.
That's because power rates are not pegged to fluctuating oil prices but to what fuel would cost when delivered every three months.
To provide more certainty, the Trade and Industry Ministry has decided, since 2004, to peg electricity taxes to a three-month forward fuel price formula.
That means power rates do not fall immediately if oil prices drop but will instead follow the the market price of oil delivered in the next quarter.
"This time lag works both ways - that is electricity tariffs move up more slowly when fuel oil prices are rising and move down more slowly when fuel oil prices are falling," said Senior Minister of State for Trade and Industry S Iswaran.
Mr Iswaran was responding to questions in Parliament.
He also said regulations are in place to prevent the power supplier from overcharging consumers.
But he said the government cannot make it compulsory for companies to transfer more of their profits to consumers as that would discourage them from investing more in improving electricity supply in Singapore.
- CNA/ir
Looking for a cheaper way to power up
Neo Chai Chin, Today Online 22 Oct 08;
HAS the time come for anindependent body to oversee electricity tariffs, to ensure that retailers do not short-change Singaporeans? Is there a better way of pricing electricity to benefit low-income users?
Seven MPs posed such hard questions to Senior Minister of State for Trade and Industry S Iswaran yesterday, in the wake of a 21-per-cent electricity price hike for households from this month to December.
An independent council monitoring how tariffs are set could provide reassurance to consumers, suggested MP Ho Geok Choo. It could be modelled after the Public Transport Council, which has a price-cap formula for bus and train fare increases. Currently, the Energy Market Authority approves SP Services’ electricity tariff rates.
In response to the suggestion by Mdm Ho (West Coast GRC), Mr Iswaran said we should not “overreact and set up new mechanisms and regulatory channels” as this would affect the perception of regulatory risk here. “If there’s more regulatory risk, you must expect that electricity-generating companies here will expect a higher rate of return than what they currently have,” he said.
Singapore Power — the parent company of SP Services — is regulated so that it does not earn a “supernormal rate of return”, Mr Iswaran said.
The company’s profit after taxation was $1.086 billion in the last financial year, and MP Lee Bee Wah (Ang Mo Kio GRC) questioned how one could ensure profits benefited not just investors, but also consumers.
The EMA — a statutory board under the Ministry of Trade and Industry (MTI) — uses international industry benchmarks to ensure companies earn a “reasonable rate of return compared to international standards”.
Singapore Power has to invest $5 billion over the next five years to enhance grid infrastructure, and “if they don’t earn what is considered a fair rate of return by industry standards ... they will be tempted to cut back on the investment because it is not in the shareholders’ interests and therefore not in the company’s interest,” Mr Iswaran said.
He added that the EMA is studying ways to improve the current formula for tariff-setting, and will also put up more information on price-setting on its website.
Non-Constituency MP Sylvia Lim asked if full details of the formula could be published,to which Mr Iswaran replied that “subject to any commercial confidentiality issue, I’m sure EMA will be happy to oblige”.
Ms Lim also asked if Singapore could adopt Hong Kong’s “more affordable” method of tiered pricing where higher prices are charged for electricity that households use over and above the average consumption levels.
Mr Iswaran pointed out that Singapore’s industry is broken into contestable and non-contestable segments, unlike Hong Kong’s integrated structure where electricity retailers are also grid operators and generating companies. Both systems have their pros and cons, he said, but Singapore’s approach is to reduce volatility for consumers.
Despite a 300 per cent rise in fuel oil prices since 2001, electricity prices here have risen by about 50 per cent. Asian countries index natural gas prices to fuel oil prices as there is no distinct market for natural gas like in the United States. Because three-month forward fuel oil pricing is used, high oil prices in July have led to a delayed increase in electricity tariffs, said Mr Iswaran.
On Nominated MP Gautam Banerjee’s concern that divestment of energy companies to foreign players could harm Singapore’s long-term interests, Mr Iswaran said Singapore promotes competition, and that the recent announcement that Senoko Power – bought over by a Japanese-French consortium – would power its plants with cleaner natural gas instead of oil was a good sign.
“We can expect market competition to continue exerting downward pressure on electricity prices without compromising the reliability and security of our energy supply,” he said.
Cheaper power in January?
Electricity tariffs could fall if oil prices slide further
Goh Chin Lian, Straits Times 22 Oct 08;
ELECTRICITY tariffs could fall in January if fuel oil prices continue to slide in the last three months of this year.
Senior Minister of State (Trade and Industry) S. Iswaran also said yesterday that despite the 21 per cent hike in this quarter's tariffs, households are paying less for electricity under the current pricing policy than if another formula had been used.
Mr Iswaran was replying to five MPs who had questioned the need to raise power prices by 21 per cent and had asked for the pricing formula.
MPs Ellen Lee (Sembawang GRC) and Ho Geok Choo (West Coast GRC) reflected a common ground sentiment when they asked why electricity rates had gone up at a time when oil prices had come down.
Mr Iswaran linked it to a three-month time lag in the current formula, which pegs tariffs to the price of fuel oil for delivery in three months' time.
'If the current lower fuel oil prices are sustained, the benefits will flow through with the same time lag to electricity tariffs in the next quarter,' he said.
He also distributed a chart to show that this way of pricing is less volatile, and costs households less, than a formula based on the price paid for immediate delivery of fuel oil, or spot price.
The three-month forward price has been lower than the spot price in all but five of 16 quarters since 2004, he noted.
Even so, the regulator, the Energy Market Authority (EMA), is studying whether the formula can be improved further, he said.
But he rejected Non-Constituency MP Sylvia Lim's suggestion that the formula was not sustainable.
He warned against making arbitrary changes that will dent investor confidence.
Mr Iswaran also did not think a direct comparison could be made with Hong Kong. Ms Lim had said it had more affordable tariffs by having varied pricing tiers.
He pointed out that Hong Kong generates power using mostly coal, a cheaper but dirtier fuel, while Singapore relies on natural gas. Also, in Hong Kong, the same company produces and sells the electricity and runs the power grid, while the industry here is split up with different players in charge.
However, MP Lee Bee Wah (Ang Mo Kio GRC) and Nominated MP Gautam Banerjee were worried that energy companies here reaped excessive returns, and the sale of power companies to foreigners would not be in Singaporeans' interests.
Mr Iswaran said the EMA ensures Singapore Power earns a rate of return that is reasonable by international standards.
He also expects Temasek Holdings' sale of its power companies to add competition, keep a lid on electricity prices and promote innovation. Two were sold this year, one to a China company and the other to a Japanese-French consortium.
On calls by MPs Sam Tan (Tanjong Pagar GRC) and Irene Ng (Tampines GRC) for the Government to act against price increases, Mr Iswaran said the markets will be left to work freely, but the Government will step in to help the needy.
