Stricter rules for electricity retailers will better protect consumers but may push up prices: Experts

HIGHER BUSINESS COSTS?

However, these new measures may push up business costs and in turn, price plans sold to customers, some experts said.

The rise in costs can come in the form of higher fees for hedging transactions. Electricity retailers will also have to engage independent auditors to verify their hedging performances, which translates into additional expenses, said Prof Loh.

Further, compensating customers for premature termination will require retailers to lock up some capital and that comes with an “opportunity cost” as the money could have been invested elsewhere.

“All these will add to the cost of doing business which means lesser revenue, smaller profitability,” said Prof Loh, adding that “cut-throat” discounts that were doled out in the initial days of the Open Market Electricity may be a thing of the past.

Already, prices offered by the electricity retailers have risen over the past two years amid uncertainties in the global energy market, narrowing what was once a double-digit difference with SP Group’s regulated tariff.

But Dr Broadstock thinks otherwise. While the new requirements will change the business costs for operators in the market, they may not necessarily hit the pockets of consumers, he told CNA.

For example, the introduction of a performance bond will require retailers to set aside some capital now for future transactions. While this means that current operating costs have increased, the additional sum that is set aside is what retailers would have expected to spend as part of doing business.

Said Dr Broadstock: “Therefore, it might be better to think of it as a future expense brought forward, rather than an additional cost. For this reason, end consumers might not see significant shifts in electricity prices due to these regulations.”

He also reasoned that the rule changes do not directly impact the components that determine the regulated tariff, which is what retailers use as a benchmark for their price plans.

Around 75 per cent of the tariff rate is benchmarked against actual fuel and power generation costs, while more than 20 per cent comes from network-related costs such as maintenance.

With that, Dr Broadstock said: “This is no absolute guarantee that we will not see higher bills, but is consistent with the idea that the regulator is trying to improve the quality, and resilience, of retailers, with limited negative impact to consumers.”