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Electricity Tariff Review in Peninsular Malaysia for 

Regulatory Period 2 (RP2: 2018-2020) 

under Incentive-Based Regulation (IBR) Mechanism

30^th March 2018

Electricity Tariff Review under the IBR Mechanism for the 2^nd Regulatory 

^{_{Period (RP2: 2018-2020)}}

Summary of key Government decisions on

13 Dec 2017:

i. IBR implementation for regulatory

period 2 (RP2) in the Peninsular

effective on 1st January 2018 to 31st

December 2020.

ii. Maintain current tariff structure and

schedule.

iii. Consumers continue to receive

reliable electricity supply along with

more advanced infrastructure

development initiatives and support

programmes by TNB

^{_{IBR is a mechanism for electricity tariff setting with incentives}}

^{_{to improve efficiency of TNB and give greater transparency for customers}}

               Before IBR                                                                       After IBR

From non-transparency cost mechanism                        To IBR that achieves transparency

4

Electricity tariff is made up of two components under IBR Framework - Base Tariff and Imbalance Cost Pass-Through (ICPT)

Imbalance Cost Pass-Through (ICPT) :

6-monthly tariff adjustment to reflect

variations in fuel costs, costs

associated with PPAs & SLAs and RE

displaced costs

Base Tariff reflects:

a) CAPEX and OPEX of Transmission,

Distribution, System Operation (SO)

and Single Buyer (SB) Operation

b) Return on regulated asset base of

Transmission, Distribution, SO and

SB

c) Power purchase cost charged by

Generators (including base price for

fuel) to the Single Buyer (SB)

Note 1 : CAPEX = Capital expenditure

2 : OPEX = Operational expenditure

Revenue Requirement Building Block Model Under the IBR Framework

Efficiency                    

       • testing for efficiencies through benchmarking and trend analysis 

• review of historical cost performance
• efficiency and prudency of asset management policies
• consistency with capex and sales forecast

^{_{IBR Mechanism has been}} 

Successfully Implemented in the 1^st Regulatory Period (2015-2017) 

RP1: Total RM 6.3 bil of rebates and subsidies were passed-through to end-customers

ICPT review every 6 months:

The rebates from March 2015 until June 2017 (P3-P7) were made possible largely due to the savings derives from

lower actual fuel price (i.e. Coal and LNG) as compared to benchmark prices

Main factors allowing for rebates and subsidies of RM 6.3 bil

 1. Generation mix : Higher actual generation from coal in RP1, compared to gas

Made possible by improved coal plants performance

2. Cheaper coal price :

3. Reduction in gas volume :

Reduction in actual gas volume in

RP1 means less utilization of

higher priced LNG

Power Sector Coal Prices (USD/MT)

Note: 

1- Forex or Exchange rate is: 1 USD to RM

2- Benchmark coal price is 12.43 RM/mmBTU (11.78 RM/GJ)

Source: Fuel Management, Single Buyer, TNB

Power Sector Coal Prices (RM/MT)

Note: 

1- Forex or Exchange rate is: 1 USD to RM

2- Benchmark coal price is 12.43 RM/mmBTU (11.78 RM/GJ)

Source: Fuel Management, Single Buyer, TNB

Liquefied Natural Gas (LNG) Price to Power Sector (RM/mmBTU)

RM/mmBTU

Actual price billed by PETRONAS

Benchmark price in tariff

Revised price by PETRONAS1

Source: PETRONAS

Regulated Piped Gas Price to Power Sector (RM/mmBTU)

Note:

1  - Prior to May ‘97, the Gas Price Formula for Power Sector  = 1.04 x MFO Price

2  - From Jan 2014, the regulated gas price is only applicable for gas consumption ≤ 1,000 mmscfd. Consumption beyond this will be priced at LNG

RP1 ELECTRICITY TARIFF COST OF COMPONENTS UNDER IBR FRAMEWORK

Regulatory Period 1 (2015-2017)

38.53 sen/kWh

RP1 ELECTRICITY TARIFF COST OF COMPONENTS UNDER IBR FRAMEWORK

Changes in Customer Mix (%) in RP1 (2015-2017) 

•  Customer growth from 7.9 mil (2012) to 8.5 mil (2017)

• Changes in consumer mix with revenue from commercial/ services sector
• Actual average selling price in RP1 was 39.45 sen/kWh vs. approved average base tariff at  38.53 sen/kWh

Summary of TNB RP1 (2015-2017) Performance Indicators 

Summary for FY 2017:

1. 10 over 14 KPIs are in incentive band

2. 3 KPIs in neutral band

3. One KPI in the penalty scheme (Average of MSL

Compliance Performance)

Indicator:  I = Incentive   P = Penalty  N = Neutral

(For RP1, the incentive and penalty scheme was implemented for monitoring purpose only without any monetary impact)

•Efficient and reliable                                   •Supporting                                                •New performance                                   •Separation of these                                        electricity supply at                                       Government’s                                            indicators on each                                     business entities will                                               the lowest efficient                                        initiatives in green                                     business entity that                                   enhance the system                                             cost;                                                            energy and                                               are in line with                                          reliability and                                                         

                                                                   sustainability for                                        Government’s                                           consumer experience;

•Enhancement in                                          example AMI,                                            policies;                                                                                                                             safety and reliability                                     Distribution                                                                                                               •This will increase the                                            with smart grid                                            Automation, Group                                     •Enhancement on KPI                                productivity and 

capabilities.                                                 Relamping of                                              mechanisms and                                       consumer 

                                                                  streetlight, etc.                                           principles (symmetric                               satisfaction.                                                                      

                                                                                                                                   and asymmetric).                                                                                                            

                                                                 •Continue the gas

                                                                 price subsidy

                                                                 rationalization by

                                                                 gradual removal of

                                                                 gas price subsidy;

RP2 (2018-2020) of Regulated Business Entities under the IBR Framework

Governed under PPA/SLA/REPPA

Regulated Under IBR

For RP2, five regulated business entities will be operating under IBR framework with the

separation of Distribution Network and Customer Services

Determination of Regulatory Weighted Average Cost of Capital (WACC) 

for RP2 (2018-2020)

RP1: WACC is 7.5%

^{_{New Base Tariff under IBR mechanism RP2 (2018-2020)}}

^{_{is 39.45 sen/kWh}}

Base tariff for RP2 (sen/kWh)

^{_{RP2 (2018-2020) Allowed Revenue Requirement}} 

is RM135 billion

1-RP1 represents the allowed revenue for 2015 – 2017 

2-The numbers for RP2 allowed revenues are levelised based on allowed return of 7.3% 

69% of the total allowed revenue for RP2  is to account for Single Buyer Generation Cost

The levelised Single Buyer generation cost for RP2 is 27.05 sen/kWh.

an increase of 1.08% (RP1: 26.76 sen/kWh)

Others include: VOR Payment, Hydro Energy Payment, Renewable Energy Displaced Cost under the FiT regime and Laos-Thailand-Malaysia 

Interconnection

^{_{In summary, 3 major shifts in RP2 (2018-2020) contributes}}

^{_{in a lower increase in the Single Buyer Generation Costs}}

1. Lower load growth (1.8 – 2.0%) and lower sales volume

    - less generation required to meet demand

2  Coal will be the dominant fuel in the energy mix for RP2

3. Significant reduction in gas volume means less utilization of LNG

RP2 (2018-2020) Total Allowed CAPEX is RM 18.8 bil

(RP2 Proposed: RM 25.1 bil)

• 85% deliverability adjustment is applied on all regulated business entities' overall CAPEX. The deliverability adjustment reflects historical under-delivery by TNB against approved RP1 CAPEX. 
• Major Infrastructure development initiatives in RP2:

i.      Advanced Metering Infrastructure (AMI) with the installation of 1.5 million smart meters starting with major urban areas of the 

Peninsular;

ii.      Fiber optic networks to ensure the reliability and safety of electrical supplies are assured; and

iii.     Installation of 367,000 LED street lights in major cities throughout the country to promote energy efficient practices.

RP2(2018-2020)  Total Allowed OPEX is RM 18.2 bil

(RP2 Proposed: RM 18.7 bil)

Review of Two Major RP2 (2018-2020) CAPEX

RP2 Average Regulated Asset Base (RAB) (2018-2020)

RP2 (2018-2020) TNB’s Regulated Business Entities

Revenue Requirement

RP2 (2018-2020) TNB’s Regulated Business Entities Revenue

Requirement (RR)