If this is the case, why is it that, for the period from January 2006 to last month, whenever the fuel price dropped, the tariff dropped less?
Specifically, when the fuel price dropped by 26 per cent from October 2006 to April 2007, the tariff dropped by only 13 per cent. Fuel price dropped by 61 per cent from October 2008 to April 2009, against a 41-per-cent drop in the tariff.
Fuel price dropped by 7 per cent from April to October in 2010, against a 1-per-cent drop in the tariff. Fuel price dropped by 3 per cent between last July and October, against a 1-per-cent drop in the tariff.
Since the EMA’s website says that the non-fuel cost has remained largely unchanged over the past few years, why does the tariff move in tandem with fuel price increases but not so when the fuel price drops?
Tariffs do fall in tandem with decreases in fuel prices. Fuel cost accounts for about half the tariff. It is therefore logical for the change in electricity tariff to be smaller than the change in fuel prices.
For instance, as Mr Leong pointed out, from October 2006 to April 2007, the tariff dropped by 13 per cent when there was a 26-per-cent decrease in fuel price.
Similarly, when fuel prices rise, the electricity tariff would increase by a smaller percentage.
For example, from April 2007 to April 2012, the tariff increased by 52 per cent, against a 109-per-cent increase in fuel prices.
Electricity tariffs are also affected by quarterly fluctuations in the non-fuel cost components, such as capital and operating costs, as well as an adjustment component to account for the variation between forecasted and actual electricity consumption.
These fluctuations can cause tariff changes to be disproportionately lower or higher than that implied by fuel cost changes.
For instance, when fuel prices increased by 8 per cent from January to July 2006, the tariff increased only by 1 per cent; and when fuel prices increased by 26 per cent from April to July 2009, the tariff increased by just 7 per cent.
Given the short-term fluctuations of the tariff’s non-fuel cost components, it is more meaningful to consider the data over a longer time period.
As the data from April 2007 to April 2012 illustrates, over the past few years, the non-fuel cost has remained relatively stable, and electricity tariff changes have been driven primarily by fuel price changes.