The price of crude oil has been dropping steadily. Since seeing the high of S$122.45 on May 3rd, crude oil has fallen to a low of S$98.78 today. Will small consumers and households benefit from this downward trend in crude oil prices by seeing a reduction in their electricity bill?
Singapore's electricity rates are calculated using a formula pegged to crude oil prices, reviewed every three months and were last raised in April 2010.
Singapore's Energy Market Authority (EMA) which recently revised the electricity tariff formula by using the average of crude oil prices in the preceding three months to determine the tariff for the current quarter, approved this revised tariff.
Although Senior Minister of State and Industry S Iswaran said that the revised formula had key advantages and would help to reduce the volatility of electricity tariffs, it has yet to benefit the majority of households and small consumers in Singapore.
Since the EMA chooses to peg the price of electricity to crude oil (although the power plants predominantly use natural gas to generate electricity for Singapore), they should perhaps consider better capturing prevailing conditions in the oil markets, and use the 'next months contract' formula which takes into account prices of fuel oil for delivery a month later.
Although adopting this formula will mean frequent changes and more uncertainty, it may mean more actual savings on the electricity bill for the average household and for the small consumers.