Sunday, April 1, 2012
No April Fool Joke
SP Services says "the increase in fuel oil price saw a corresponding increase in price of gas which is used for power generation in Singapore" i.e. they are now shifting blame from the oil price to gas price. Oil or gas, surely there are futures contracts to hedge against?
The Energy Market Authority has this blurb about vesting contracts being introduced in 1 Jan 2004. The key policy objective of the vesting contract regime was supposed to curb market power in order to promote efficiency and competition in the electricity market for the benefit of consumers. The vesting contracts are bilateral electricity contracts between generation companies and SP Services. Under the vesting contracts, the generation companies are committed to sell a specified amount of electricity (viz. the vesting contract level) at a specified price (viz. the vesting contract price). This was meant to remove the incentives for generation companies to exercise their market power by withholding their generation capacity to push up spot prices in the wholesale electricity market.
EMA reviews both the vesting contract (last updated per addendum 4 in March 2011) and the parameters used to set the vesting price every two years.
So how is it the price to the consumer is jerked every quarter? When the Natuna Gas Supply was negotiated, surely it was on a longer term than quarterly basis? After EMA engaged Cambridge Energy Research Associates (CERA) to review the tariff formula in 2009, the net result was that the fuel component of the tariff was revised based on the 3 months of the preceding quarter instead of the last month. But the vesting price is still tweaked every quarter. It's like what Gerard Ee and and his merry men did: after so much "deliberation", and paying some consultant $860,000, the Ministers are still living it up with at least a million dollars every year, thanks to the creative bonuses. And the taxpayers are still footing the bill - if not from the electricity bill, it's the ERP, COE, GST, HDB pricing, transport fares, health care charges, university fees, etc, etc.