A theory on electricity prices

Recently, our electricity suppliers announced that they are going to increase the price of electricity. The reason? Rising oil prices being forecasted. It has raised quite some public feedback, citing that price determination in the electricity market is not transparent.

Why would they say that oil prices are rising, when they have actually fallen over the past few weeks?

I think it is due to the privatisation of our electricity market.

A successful campaign by the government to save electricity has actually resulted in people in Singapore using less electricity. What does this mean? Revenue for the electricity supplier has actually fallen.

But a private firm is governed by profit maximisation, as classic economics theory will tell you. And in an inelastic demand market such as electricity (you can only cut down your use by so much before it doesn't make sense anymore), a rise in price will see a less than proportionate drop in quantity demanded. What this means is that by raising prices, the company actually realises more revenue. And at less cost. Which means higher profits. Which for a private firm is actually not a bad thing at all.

Yet not a good thing at all for the general public. Which is why we need to avoid monopolies. Which is why we need government watchdogs to police our electricity supplier to ensure that it does not work against public interest for its own interest. Let's hope the watchdog actually does its job, rather than sing the same tune. After all, oil prices really are dropping. Just drive out to the petrol kiosk and take a look.