How was the new electricity tariff calculated? - Saleh Mohammed

I have become immune to news on upward revisions of things that affect my savings and well being since May 2013. It came from single digit to two and also three digit increases and almost all came by surprise.

The latest is a double-digit increase in the form of electricity rates that I find difficult to avoid unless I live in a cave far away from civilisation.

The new electricity tariffs will be adjusted under a 2-part pricing structure. The two components are Fuel Component that accounts for 82% of the new tariff, and the Non-Fuel Component that accounts for the remaining 18%.

Out of the 4.99sen/kWh adjustment in new tariff announced yesterday, 4.09 sen is fuel cost (3.41 sen for LNG, 0.51 sen for piped gas and 0.17 sen for coal), while 0.9 sen is the Non-Fuel portion.

While I welcome increases, including pay increase during my working life, I am not able to comprehend this double digit increase, especially now that I am retired. I hope someone can enlighten me on how the rate of increase came about and also the breakdown in the fuel cost component.

Currently, the electricity generation mix in Peninsular Malaysia is roughly 47% gas, 45% coal and 8% others.

By applying the breakdown given for the fuel cost component, gas (both LNG and piped) constitutes approximately 96% of the total fuel used (please see table below) but the current generation mix shows only 47%.

The breakdown also implies that generation mix using LNG will be 83.4%. Should this be the case, I am of the view, it is not the best option.

	sen
LNG	3.41	83.4%
Piped gas	0.51	12.5%
Coal	0.17	4.2%
Others	0.00	0.0%
	4.09	100%

The current average tariff rate is 33.5 sen per kWh, which is about 8.5 sen, or 25.3%, below the "true cost" of power estimated at 42 sen per kWh. Subsidies for the power sector alone are estimated to cost the Government RM8 billion to RM12 billion per year, depending on the prevailing prices of the input fuel, specifically gas.

With the increase in electricity tariff by 4.99sen/kWh, the government will save around RM4.7 billion to RM7 billion in terms of subsidies.

I hope the savings will be put to good use and interested parties will not use the Incentive Based Regulation (IBR) to their advantage and at the expense of the public.

* Saleh Mohammed reads The Malaysian Insider.