EMA: SP Group’s higher tariff reflects “long-term costs of producing and delivering electricity”

Last Wed (16 Jan), a member of the public, Albert Tang, wrote to ST Forum asking why SP Group didn’t offer the heavily discounted electricity rates, which many of the electricity retailers are currently offering to the public, in the first place.

“Given that electricity retailers are looking to make a profit, have spent a significant amount on marketing costs and are still able to offer consumers electricity rates that are a good 20 to 30 per cent lower than SP Group’s, why doesn’t SP Group just offer consumers these lower rates in the first place?” he asked.

Indeed, according to moneysmart.sg, one can get a fixed discount of as much as 25% off the regulated tariff from SP Group for floating rates. For fixed price plans, it can be even higher at 30% discount.

Mr Tang continued, “Many of the 13 or so retailers participating in the OEM do not generate their own power, instead claiming to buy in bulk from power plants to sell to consumers. As the largest bulk buyer of electricity, SP Group should benefit the most from economies of scale, and be able to pass the savings on to consumers.”

“It is hard to understand the logic behind creating the OEM and getting so many retailers to compete for consumers, when SP Group is in a position to bypass this step to sell electricity directly to consumers at more competitive rates,” he added.

Indeed, many netizens are also wondering if SP Group has overcharged the public all this while.

EMA: Current lower prices offered by retailers due to electricity production capacity exceeds demand

In response to Mr Tang’s letter, Ms Dorcas Tan, Director of Market Development and Surveillance Department of the Energy Market Authority (EMA), replied on ST Forum today (‘Why electricity retailers’ rates are better‘,23 Jan).

She said that the regulated tariff, charged by SP Group and approved by EMA, reflects the “long-term costs of producing and delivering electricity in Singapore”.

Such long-term costs include the costs of building and operating the power plants and maintaining the power grid, she added.

“On the other hand, the electricity rates offered by retailers typically reflect the current market conditions, level of competition and short-term costs of producing electricity,” she said.

“Under current market conditions where electricity production capacity exceeds demand for electricity, we can expect market prices to be lower than the regulated tariff. However, this may change over time based on market demand and supply.”

That is to say, the current low prices offered by the electricity retailers are due to over-capacity supplied from SP Group.

But she cautioned that retailers, like all businesses, may adjust their prices and discounts over time.

So, the question remains, if SP Group — which is owned by Temasek — has been over-generating electricity all these while, why didn’t it lower the electricity tariff for Singaporeans in the first place, instead of allowing them to suffer with the high cost of living in Singapore for the last many years?

Indeed, according to blogger Philip Ang after he combed through every SP Group’s annual report since 2005, he has discovered that SP Group has been making an average of almost S$1 billion for some 13 years. From 2005 to 2017, its annual net profit averaged almost S$1 billion.