Distinguished delegates,

Ladies and Gentlemen,

Good afternoon. It is an honour to join you here today at the opening of "The Metering, Billing and CRM/CIS Asia Pacific 2002 Conference & Exhibition".

This conference provides a comprehensive forum to examine the opportunities and challenges facing the customer-end sector of the utilities industry.

The restructuring of our electricity industry is progressing well and we are due to kick off the new market some time this year. This exercise has not been a simple singular restructuring but a series of changes and improvements. Our effort to liberalise the electricity industry started in 1995 following similar events in the UK, elsewhere in the Commonwealth and in Europe. The government’s electricity department was first corporatised. But we kept the generators, grid and retailer as a single vertical company called Singapore Power. Commercialisation of the electricity department quickly bore fruits. Service levels improved as the company became driven by the bottom line.

However, structural issues concerning our electricity industry quickly surfaced as the industry began to complain of inadequate and unlevel competition. The problem was the market power of the vertically integrated Singapore Power. We tried many formulations to address this, ring-fencing the grid, independent boards for Singapore Power’s gencos and heavy regulatory oversight. But the market remained sceptical of the effectiveness of these changes.

In 2000, we conducted another review of our electricity industry. This time, we decided to make deep structural changes for a more competitive industry. The monopolistic services of power transmission and distribution were separated by ownership from the competitive business of power generation and retailing. As we are using natural gas to generate significant amount of electricity, a competitive framework for the gas industry was also established. The monopolistic business of gas transportation was also unbundled from the competitive business of gas importation and retailing. To ensure that the wholesale electricity market is not dominated by a few large gencos, we will introduce vesting contracts to curb their market power.

Our new electricity market will adapt the latest practices from similar markets around the world. There will be a revised Electricity Pool and a market for spinning reserve. The new market will also cater to interruptible loads and it will have nodal pricing. I believe all these innovations will work if we can deliver three things: competitive prices, choice for consumers and maintain their trust and confidence.

The reasons for introducing competition in the electricity industry are well known. In brief, it will result in better resource allocation, higher efficiency and more competitive prices in the longer term. However, consumers do not necessarily see this in the same context. In many jurisdictions, electricity is part of the basic services which the state provides and this should be affordable to the masses. Hence they do not think in terms of competitive prices but instead of cheap prices. Therefore, deregulation will not succeed if it does not save money for the consumers. In Singapore, we had been able to lower electricity prices because of the excess generation capacity we have and the availability of natural gas for the more efficient Combined Cycle Gas Turbines to generate electricity.

While consumers will be happy that deregulation will deliver lower prices initially, they should understand that in the new market, electricity prices must be allowed to rise and fall to reflect actual demand and supply conditions. If prices are not allowed free expression according to market conditions, we will risk masking economic signals needed to make the right decisions for new investments in our electricity system. This is going to be quite a new ball game for our consumers. Hitherto, our electricity prices are still regulated. They are adjusted when the cost of producing electricity changes. Singapore consumers thus know that when oil prices rise, they can expect their electricity tariff to also go up. Similarly when oil prices go down, they expect to pay less for electricity. In the new market, electricity prices will be determined by supply and demand in addition to the costs of producing electricity. If supply is short, prices will rise. This in turn will signal to consumers the need to trim demand and to conserve. At the same time, it triggers investors interests in building new generation capacity to meet the supply shortfall. Consumer education is therefore very important as we move from a regulated to a competitive regime.

In Singapore, a few large electricity customers consume a significant part of our load. Our domestic households and small consumers only take up 25 % of the load. Our large consumers are sophisticated industrial users. They want to choose who to buy electricity from. Some require clean power. Others want the flexibility of putting up co-generators and even their own grid. Our electricity industry has to meet the demands of these users. Currently, some 200 consumers with maximum power requirement of above 2MW each can choose to purchase electricity from retailers of their choice. As of February 2002, the consumers who switched to other retailers account for approximately 30% of the total demand in Singapore. Another 5,500 consumers will be declared contestable after the commencement of the new wholesale market. The next phase will be extended to another 5000 consumers six months later. These contestable consumers can choose more innovative services and packaging from their retailers. We will progressively extend retail contestability to all remaining consumers. For them, they may not be able to choose the cheapest time to consume electricity because interval meters are still expensive but they will certainly be able to choose between retailers offering different electricity packages just as there are now different mobile phone pricing for handphone users.

As we liberalised, we must ensure that consumers trust and confidence are not eroded. The lights need not have to go off before confidence is lost. There are many other things that can go wrong which industry players and regulator must guard against. In Singapore, we had a bad billing problem with our electricity bills last year. The changeover of billing software by Power Suppy was not well executed and many billing errors were sent off. Many bills were wrong and numerous bills were backlogged. Consumers became irate. This problem was compounded when electricity tariffs were raised because oil prices went up. It quickly became a politically sensitive issue when citizens complained to their MPs about their high and inaccurate bills. Fortunately, we acted quickly. The billing company apologised. It set up customer service counters in major community centres near residents’ homes to explain to them. The billing mistakes were corrected and an installment plan was worked out for delayed bills. The situation was diffused. Trust and confidence were dented but they did not evaporate. The lesson we learnt from this episode was that the smallest computer glitch can ruin the reputation of the whole system and it will cost us a whole lot more to restore confidence. Hence for the IT systems required to implement the new market, we will ensure that they are doubly robust and resilient and well tested before opening the market.

The theme of this conference on billing and metering will provide a good opportunity for delegates to interact and exchange experiences how to deal with consumer education, their expectations and demand in the restructuring the utilities industry.

I wish you all a fruitful conference and an enjoyable stay in Singapore. Thank you.

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