IN THE letters, "Review calculation method for power prices" (my paper, Oct 2) and "Open energy market to give Singaporeans better deal" (my paper, Oct 3), Mr Michael Leong and Mr Paul Fong asked why the electricity tariff was revised upwards despite the decline in the price of oil.

The electricity tariff is updated by SP Services every quarter, based on the forward fuel-oil price quoted three months earlier.

This means that there is a time lag between changes in the fuel-oil price and the actual tariff revision.

When the fuel-oil price rises unexpectedly, the tariff will not go up immediately.

Likewise, when the fuel-oil price falls, the tariff will not go down right away.

For example, households did not experience a steep increase in the electricity tariff in July despite the record-high oil price then.

This is because SP Services used the forward fuel-oil price quoted earlier in April (US$83 per barrel) to set the tariff.

For the recent tariff revision, SP Services used the forward fuel-oil price quoted in July, which was at a peak of US$115 per barrel.

This time lag explains why the tariff has increased even though the oil price has now fallen to below US$100 per barrel.

If the oil price continues to stay down, then the tariff would also fall, but after a lag in time.

We agree with both Mr Leong and Mr Fong about the advantages of liberalising the electricity market to ensure competitive pricing.

The liberalisation of the electricity market for industrial use has already resulted in real benefits for consumers, as electricity providers compete to offer better services and new products.

Going forward, the Energy Market Authority plans to open up the domestic-household sector for competition.

We have embarked on a pilot project to test the viability of the Electricity Vending System (EVS).

If the EVS is implemented, it would allow households to purchase electricity from competing providers, based on a price plan that best suits their usage needs.

This will allow more scope for product innovation, better customer service and competitive pricing.

Ms Jenny Teo
Director Corporate Communications
Energy Market Authority

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