Tariff adjustment explained
IBR allows EC to check actual cost of generating electricity every six months
THE following is the transcript of an interview with Energy Commission Electricity Pricing Unit, Energy Development and Market Regulatory Department head Marlinda Mohd Rosli on Radio Televisyen Malaysia TV1’s programme.
The interview, titled, “Electricity Tariff Rebate Adjustment” was aired on July 19. Secondly, the supply is done in a cost effective manner while the tariff is set at a reasonable rate. And thirdly, the safe supply of electricity.
In addition, we advise the government on the development of the electricity supply industry, as well as promote the use of smart energy among consumers.
The mechanism that we are discussing today is known as the ICPT mechanism.
It is part of the New Electricity Policy Appraisal Framework known as the Incentive-Based Regulation (IBR), which was approved by the government and implemented since January 2014.
Through the IBR mechanism, we examine the actual cost of generating electricity every six months.
However, this time around, the Minister (of Energy, Green Technology and Water) announced on June 30 that the government would spend RM1.3 billion to ensure that the current tariff rate remains unchanged.
Hence, what we will review in the next six months is the actual cost compared with the base tariff cost that was set in January 2014.
From this perspective, there has been an increase in fuel prices that we should pass on to consumers, but the government had absorbed it.
In addition, under the second component, the government has agreed to maintain the current rebate rate of 1.52 sen/kWh (kiloWatt hour) per unit. In short, what we can say is that consumers will not see any increase in electricity bills by using the same amount of kilowatts.
We use the appropriate fund (power purchase agreement (PPA) savings fund) to cover these expenses.
Let me sum up the components. The first component is called surcharge.
The surcharge is imposed due to higher coal prices and the depreciation of the ringgit.
That means, when we set the base tariff in January 2014, we fixed the coal price at US$87 (RM373) per tonne, but now with the depreciation of the ringgit, the cost of coal has increased, compared with the currency exchange at RM3.1 previously (first component).
In addition, we carried out a revision of gas prices — a subsidy rationalisation plan. We reviewed the gas price of RM1.50 (per mmBTU) every six months, so that resulted in the cost of energy supply to increase between January and June this year.
Secondly, we maintained the rebate. We retained the 1.52 sen rebate and it costs RM780 million. So, with these two components (surcharge and maintaining the rebate), that is amounted to an entire rebate of 2.54 sen/kWh per unit.
We have been negotiating with IPPs. When we negotiate, there are savings we can take back because at the time, we know that most of the first generation IPPs were earning slightly higher profits. Based on this concept, we used the money to offset the costs.
The IBR mechanism will be reviewed every three years. Its objective is to ensure that the electricity tariff is fixed at a reasonable rate.
Marlinda Mohd Rosli