By Leong Sze Hian
I refer to the article “Electricity tariffs to go up an average of 1.5% from April to June” (Straits Times, Mar 28).
It states that “Electricity tariffs will increase by an average of 1.5 per cent from April 1 for the next three months.
Increase due to infrastructure investments?
This increase is due to rising fuel prices and additional infrastructure investments to meet increasing electricity demand and replace ageing assets.
The latest tariffs have been approved by electricity industry regulator the Energy Market Authority. SP Services, a subsidiary of Singapore Power, reviews the tariffs quarterly based on guidelines set by the authority.”
Reasons for increase in the past?
So, we are now being told of yet another reason to increase the electricity tariff – “additional infrastructure investments to meet increasing electricity demand and replace ageing assets”.
In the past, various other reasons have been given, such as non-fuel component increase more than fuel component, inflation more than offset cost-cutting measures, etc.
Why not use billions of dollars of cumulative profits?
Singapore Power’s Net Profit After Tax was $802, $924 and $930 million, in FY 2009/10, 2010/11 and 2011/12, respectively.
As I understand that the cumulative profits over the years may be in the tens of billions of dollars, why can’t some of these be used for “additional infrastructure investment”, instead of increasing the electricity tariff?
Electricity tariff issues?
As the issues are rather complicated, allow me to reproduce something which I wrote last year, which may help you to understand some of the issues.
“I refer to the Energy Market Authority’s (EMA) reply “Power tariff increases in line with fuel prices: EMA” (Straits Times, Apr 7) to my letter Power tariff peg to fuel prices raises question over latest hike” (Straits Times, Apr 3).
It states that “While Singapore is a price-taker when it comes to fuel costs; the Energy Market Authority (EMA) has worked with the power industry to lower non-fuel costs where possible.
For example, we liberalised Singapore’s electricity market in 2001 to encourage more competition. This incentivised the generation of companies to replace their oil-fired steam plants with more efficient gas-fired power plants. Without this development, the electricity tariff here would have been at least 15 per cent higher now.
Since 2008, Singapore Power has reduced its grid charges and its fees for providing billing and meter reading services by more than 10 per cent and 20 per cent respectively. These savings were achieved through productivity improvements and efficiency gains.
The EMA pegs the non-fuel cost for power generation to the cost of the most efficient generation technology in our system, the gas-fired power plant. This helps to ensure that power companies here invest in the latest and most efficient technologies available, so that we continue to realise efficiency gains that can be passed on to consumers”.
Many measures, but non-fuel cost did not go down
So, this begs the question as to why despite all the above measures to lower the non-fuel cost component of the electricity tariff, prices have not come down over the last five years or so. In this regard, the EMA’s web site says that “the non-fuel cost, which reflects the cost of generating and delivering electricity to homes, has remained largely unchanged over the past few years.”
Fuel price goes down, but tariff goes up!
In this connection, the EMA’s reply to my letter “Fuel oil prices are falling, so why are tariffs still high?” (Today, Dec 10, 2008), said that “Mr Leong Sze Hian asked why, despite a 4-per-cent fall in the forward fuel oil price from $96.64 per barrel in January 2008 to $92.99 per barrel in January 2009, the electricity tariff over the same period increased by 1 per cent. The electricity tariff comprises both fuel and non-fuel cost components. While the fuel cost has come down due to the decline in fuel oil price, the non-fuel cost, which includes the operating and capital costs of the power plant, has increased due to inflation. This increase in the non-fuel cost more than offsets the decline in the fuel cost, which explains why the overall tariff in January 2009 is slightly higher than that in January 2008”.
So, despite all the measures to reduce the non-fuel cost, the non-fuel cost “increased due to inflation”, such that “this increase in the non-fuel cost more than offsets the decline in the fuel cost, which explains why the overall tariff in January 2009 is slightly higher than that in January 2008.”
Hence, we have a situation whereby the electricity tariff went up despite a fall in fuel price because the non-fuel cost went up, and now in 2012 the electricity tariff goes up because of higher fuel price with the non-fuel cost remaining constant despite so many measures to reduce it over the years.
Power stations sold to foreigners recouped capital costs
“Mr Leong suggested that the non-fuel component be reduced as the capital costs of the power plants have already been recouped. This is not an accurate reflection of the situation.”
To ensure that our power system is able to meet Singapore’s rising electricity demand, continual investments are needed to maintain and upgrade power generation and transmission infrastructure facilities. Such recurrent costs are reflected in the non-fuel component of the tariff,” I am somewhat puzzled as to why the power generation capital costs (building power stations) that may have been recouped when several of our power stations were sold to foreign companies, was not enough to offset the need to increase the non-fuel cost due to “continual investments are needed to maintain and upgrade power generation and transmission infrastructure facilities”.
Does this mean that Singapore consumers may be paying for the upgrade of power generation (power stations), even after they are owned by foreign companies? Also, with “Singapore’s rising electricity demand,” shouldn’t the economies of scale been able to reduce per unit non-fuel costs? Profits were up 45% in 2 years
It is perhaps interesting to note that Singapore Power’s underlying net profit after tax increased by about 45 per cent from $616 to $893 million from FY2008/09 to FY2010/11. And of course I have no way of figuring out how much profit the foreign-owned power stations are raking in from the supply of electricity in Singapore.” (“So many measures to reduce electricity tariff non-fuel cost?“, Apr 12, 2012)
Collection of issues over the years?
As there are also various other isssues about the electricity tariff over the years, which are rather complicated and lengthy, you may also like to read the following references:-
“Electricity tariff rises more when fuel prices are up“, Jun 7, 2012
“Tariff not falling in tandem with decrease in fuel price“, Today, May 17, 2012
“Helping S’poreans save on electricity bills?“, Apr 2, 2010
“Fuel oil prices are falling, so why are tariffs still high?“, Today, Dec 10, 2008
“S’pore needs to cut utilities charges, usage“, Business Times, Feb 9, 2007