For yr info:
Tariff revision no benefit to power
Tuesday • October 28, 2008
Letter from Jenny Teo
Director, Corporate Communications
Energy Market Authority:
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
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
Tuesday • October 28, 2008
Letter from Ho Lai Fung
Director, Corporate Communications
Singapore Power Ltd:
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.
Do you guys believe these are truly private entities? kepel, sembc..., etc, some of these are gic with part foreign interests.
The current scenario is like, I cut you with a knife and give you a panadol. I dont own the knife so its not my fault, though I was the one who inflict the injury on you. I am not a criminal either as I am EMA, the authority.
Nuclear price advantage is more obvious during times when fuel price is high but may not be any cheaper when price of fuel is low due to high asset costs.
Last edited by foreverlovex; 30th October 2008 at 08:54 PM.
Do check out the Vesting Contract Methodology. I have provided the link in the previous post to this thread. As stated many times......fuel price is not an excuse as electricity in Singapore is mainly generated using fuel (e.g. natural fuel, high sulphur fuel oil 180, etc).
Maybe a better way to shoot the energy industry players is on the methodology. I am glad that our NMP from worker party at least got do some homework and don't shoot blindly.
Last edited by foreverlovex; 30th October 2008 at 09:34 PM.
Consider tiered charge in electricity tariff
I REFER to Monday's letter by Mr Paul Chan, 'Electricity prices: 82% higher here than in Hong Kong'.
Mr Chan's query about the price of electricity in Hong Kong and Singapore is partly answered by the fact that Hong Kong produces electricity largely from coal, and hence the impact of volatile fuel prices is not as amplified as it is here.
However, the unanswered part which the Singapore authorities should seriously consider is that Hong Kong has a system of tiered charging for electricity based on consumption.
Thus, for the first 150 units of electricity consumed, the rate is about $18. Progressively as consumption increases, the tariff rate goes up, so those who consume more electricity pay for additional units at a higher rate.
Such a tiered charging system has several benefits:
# It ensures there is a humane rate for baseline consumption, while those who can afford it can consume more;
# At the same time, it is green - encouraging everyone to save electricity so as not to cross to the next tier and be charged at a higher rate.
Indeed, tiered charging is already in place in Singapore for water.
At the parliamentary sitting on Oct 21, I raised this suggestion which the Ministry of Trade and Industry seemed reluctant to pursue.
The other issue alluded to by Mr Chan is the lack of transparency surrounding the tariff formula.
At the same sitting, I asked whether the electricity tariff formula was a state secret and if the full details of the formula would be published. The answer was that the Energy Market Authority would be happy to oblige, subject to considerations of commercial confidentiality.
Electricity prices have risen more than 50 per cent since January last year and have doubled since January 2004. We await the ministry's response.
Sylvia Lim (Ms)
Non-Constituency Member of Parliament
Source : http://www.straitstimes.com/ST%2BFor...ry_296310.html
The vesting contract allocation is based on generating size so the 3 mains players makan a big chunk of it.
If i not wrong one can provide comments to the methodology of the vesting contract. By right EMA would need to consult on it. Check EMA's website.....
I don't mind a few short blackouts, brownouts or more voltage dips due to network problem but with a decrease in the transmission/distribution tariffs.
a few blackouts & voltage dips would not mean a dip in fares, nor any form of compensation for damage to equipement or loss of data, being handed out due to those blackout or voltage dip. any form of punitive measures will see consumers paying more in the short time to come.
Electricity supply can be maintained at lower standards. It is unreasonable for an electricity transmission coy to offer any form of compensation. It is the coys who need to do their due diligence to ensure they are not disrupted.
Lower standards are likely to bring about lower capital lay out. But one is unlikely to notice the difference after dividing the savings over 20 years (assuming depreciation is 20 years). Moreover transmission tariff is likely to constitute only a few % of the overall electricity tariff.