Tariffs go towards power firms' costs, not SP Group's profits: Minister

SP Group does not benefit from the increase in tariffs directly, said Second Minister for Trade and Industry Tan See Leng on Oct 14, 2020.
SP Group does not benefit from the increase in tariffs directly, said Second Minister for Trade and Industry Tan See Leng on Oct 14, 2020.PHOTO: ST FILE

Electricity tariffs collected by national power grid operator SP Group do not go to its profits, but to the power generation companies which have incurred higher production costs given the increase in global fuel prices, Second Minister for Trade and Industry Tan See Leng told Parliament yesterday.

He said the power generation firms need to see returns from the significant investments in infrastructure they have made. He was responding to a call by Non-Constituency MP Leong Mun Wai for SP Group to delay the hike in electricity tariffs in this downturn.

The Progress Singapore Party NCMP had cited the 9.3 per cent electricity tariff hike for the final quarter of this year, saying it was an example of a fee hike that erased the effect of the Government's support measures. "Here is a power-grid monopolist which does not generate electricity, but made billions of dollars since the liberalisation of the electricity market in 2012, sparing no time in raising prices at the first available opportunity, even as Singaporeans struggle under the Covid-19 crisis," he said. SP Group could have easily absorbed the increased costs with its past profits, instead of passing them on to consumers, he added.

In response, Dr Tan said that SP Group buys electricity from the power generation companies at the full cost of producing and delivering it to consumers, and emphasised that it "does not benefit from the increase in tariffs directly". The recent tariff increase is primarily due to the rise in fuel cost, he added. Between July and September this year, the price of crude oil rose by 47 per cent, and this increased the costs incurred by the power generation companies, said Dr Tan.

"The additional amount of electricity tariffs that SP can collect or collected from the consumers in Q4 of 2020 will then be passed on to these power generation companies to offset their fuel cost increases," he said, adding that fuel costs constitute between a third and half of total costs for power generation companies.

Dr Tan added that households get "very, very targeted support for their utility bills", such as the $100 Solidarity Utilities Credit and the goods and services tax voucher U-Save special payments. Residents in one-to two-room HDB flats get between six and eight months of help with utility bills; those in three-to four-room flats get between four and six months of help.

Senior Minister of State for Transport and Foreign Affairs Chee Hong Tat also rose to explain that SP Group, as the power grid operator, provides the transmission and distribution system connecting the power generation companies to consumers. Mr Chee, who was formerly senior minister of state for trade and industry and also previously the chief executive of the Energy Market Authority, drew a distinction between the price of electricity here and SP Group's earnings.

"It's important for us to be clear what is the business model of the various entities before we make comments like why are they making so much profit and not passing through some of these to consumers," he said.

"Mr Leong needs to understand what the facts are so that we can have a meaningful discussion based on accurate facts."

A version of this article appeared in the print edition of The Straits Times on October 15, 2020, with the headline 'Tariffs go towards power firms' costs, not SP Group's profits: Minister'. Print Edition | Subscribe