Get latest insights direct to inbox


Incentive-Based Regulations (IBR) Puts Customers First

Good customer service is a critical element of any successful business or organization. When customers are treated well, they are likely to be loyal to a service provider. Likewise, in the Malaysian electricity supply industry, customer service is a key performance indicator.

To that end, Malaysia introduced the Incentive Based Regulation (IBR) in 2004 as a breakthrough electricity tariff framework for the local energy industry. IBR ensures excellent customer service in the electricity sector. It seeks to incentivize efficiency, enhance service levels, and improve efficiency and helps electricity suppliers develop predetermined budgets and be more transparent in their dealings.

Improving the affordability of electricity in Malaysia

Within the IBR framework, tariff prices are linked directly with the performance of the national utility firm, Tenaga Nasional Berhad (TNB). This allows industry operators to perform effectively and efficiently, within a set tariff and budget allocation, in full knowledge of repercussions in terms of penalties that they may suffer in case of underperformance.

The IBR framework also provides a structured pricing system for customers, resulting in reliability and stability in the prices of monthly electricity bills. This, according to Datuk Marimuthu, President of the Federation of Malaysian Consumers Associations (FOMCA) is currently of paramount concern for households throughout the country in light of the Covid-19 pandemic.

“Although electricity is quite affordable in Malaysia, many consumers still focus on affordability as a key criterion. An increase in electricity bills is usually met with negative reactions, even when it is due to increased usage at home or business premises,” he said.

He further added, “The current and previous Governments have made significant adjustments in the power supply sector. However, some initiatives were slowed down by the COVID-19 pandemic. Most consumers were focusing on sorting out their finances and gave little attention to power issues.”

Datuk Marimuthu stressed the importance of frameworks such as IBR towards allaying concerns by electricity consumers who are saddled with additional physical, mental and financial burdens due to the pandemic. With a system like this in place, consumers can be almost guaranteed of excellent customer service.

However, he also cautioned agents on providing a satisfactory answer to consumers, especially during this trying times.

“Management of customer complaints needs to lead with compassion and sympathy, consumer is most probably already stressed with the current dilemma they are facing. Each particular complaint needs to be given equal amount of attention – through a tailored approach for each consumer, as no two consumers are the same,” he advised.

Ensuring electricity reliability

Within the IBR framework is the Imbalance Cost Pass-Through (ICPT) mechanism that has been hailed as a step in the right direction in offering reliable electricity at fair and transparent tariff to the general population. ICPT allows TNB to reflect changes (either increase or reduction) in fuel and other generation-related costs in the electricity tariff every six (6) months in the form of rebate or surcharge.

In effort to assist the rakyat, the Malaysian government has established a fund named Kumpulan Wang Industri Elektrik (KWIE) which was enforced on 1st January 2016. The fund is administered by Suruhanjaya Tenaga (Energy Commission) with the objective to manage and cushion the impact of electricity tariff to the customers, a key function to buffer electricity prices at times of financial crisis.

The fund is to cushion the impact of electricity tariff to the customers, a key function to buffer electricity prices at times of financial crisis.

Typically, generation and fuel costs make up more than 60% of the base tariff paid by consumers, while maintenance and operational costs make up the remaining. The Energy Commission usually factors in base costs related to generation, fuel, administration, maintenance, and operation in three-year cycles (Regulatory Period) with the most recent Second Regulatory Period (RP2) running from 2018 to 2020. With ICPT in place, the pricing of tariffs will be more dynamic and more realistically reflective of global market prices of raw fuel and administrative and labour costs.

The Government has approved a one-year extension of the RP2 of the IBR for 2021. Beginning from 1 January 2021, the current base tariff of 39.45 sen/kWh and the Electricity Tariff Schedule are maintained and will continue to be applicable until 31 December 2021. The decision was made following the uncertainty in demand for 2021 and the instability of the current global fuel markets following the COVID-19 pandemic.

Based on the recent ICPT announcement on 28 June 2021, all customers including domestic consumers with a monthly consumption of 300kWh and below which were not included in previous ICPT implementation will enjoy 2.00 sen/kWh rebate until December 2021.

This is also in line with TNB’s longstanding aspiration towards tackling the energy trilemma – increasing affordability and accessibility while shifting to renewable energy sources. This is very much in line with its vision to help the country achieve Goal 7 of the UN SDGs which offers affordable, reliable, and sustainable energy for all consumers.

Datuk Marimuthu heralded the efforts to introduce clean and reliant electricity supply as a gamechanger to the electricity landscape of the nation.

“While affordability is a vital factor, a greater emphasis should be given to the effects of global warming caused by power generation. A more secure and sustainable energy source is key in ensuring that steady supply of electricity could be maintained to consumers even as non-renewable sources start to deplete,” he remarked.

He pointed to the nation’s improving grid reliability evidenced by the decreasing number of power disruption in recent years.

“While other utilities have had multiple disruptions since the pandemic hit, electricity supply has been steady. Fortunately, most consumers in urban and suburban areas have been receiving power with unscheduled interruption rates of less than 2%. The System Average Interruption Duration Index (SAIDI) decreased from 48.22 minutes in 2018 to 44.96 minutes per customer per year in 2020. This was a positive bit of news amid pandemic-related problems such as job loss growing throughout the nation” he said.

This, he said is a remarkable achievement for the country despite other countries suffering power crises caused by the effects of the pandemic.

“To put this into perspective, SAIDI in Peninsular Malaysia in 2019 was 48.13 minutes per customer. In comparison, the average minutes lost per customer per year in the European Union between 2010 and 2014 was 175 minutes,” Datuk Marimuthu added.

The future of the Malaysian power industry

IBR will remain a paragon of good customer service within the power industry in the country. Datuk Marimuthu noted that TNB had a steady Customer Satisfaction Index (CSI) score of 8.6 in 2020 for the fourth year in a row.

“This is a higher score compared to UK and American utilities over the same period, reflecting the importance of the Malaysian IBR in the long term,” he added.

“This is a higher score compared to UK and American utilities over the same period, reflecting the importance of the Malaysian IBR in the long term”

Moving forward, he envisioned a power landscape in Malaysia shaped by the forces of digitalisation and customer service in this regard will have to follow suit. Using smart meters as an example, he showed how good customer service can improve consumer uptake of digitalized power services.

“The implementation of smart meters is one bit of innovative technology that many consumers showed great interest in. With this device, estimated bills are eliminated, and consumers can monitor their daily usage. At first, many consumers were skeptical with this technology but with time, its acceptance improved and its benefits are starting to be noticed, especially during the pandemic,” he said.

He also noted the utility of digital customer service applications in easing the burdens of power operators especially since Covid-19 has forced an increase in digital adoption. More people, he contends, are finding solutions online, whether it’s through chatting with an agent or checking the FAQs section in an app. Nevertheless, he cautioned against losing the human touch in customer service.

Ultimately, IBR is a framework designed to adapt and provide the necessary flexibility that protects Malaysians from such volatility. This efficiency doesn’t just benefit at a residential level, but businesses from almost all sectors across Malaysia.


Subscribe to our newsletter today

Leave a Reply

Your email address will not be published. Required fields are marked *


Latest insights,

straight to your inbox.

You’re In!

You’ve electrified your inbox.
Thank you for subscribing!