Will Electricity Rates Rise on the 23rd?... Small Increase Expected Due to Ministry of Economy and Finance's Brake

Due to rising fuel costs, electricity rate hikes can no longer be delayed... Ministry of Economy and Finance opposes increase citing 'price control' concerns

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kwon Haeyoung] The government is expected to raise electricity rates in the fourth quarter. The key issue is the extent of the increase. The Ministry of Trade, Industry and Energy believes an increase is necessary as fuel costs have been rising steadily since the beginning of the year, but the Ministry of Economy and Finance is emphasizing strict price control, leading to expectations that the increase will be minimal.

According to the government on the 20th, the electricity rates for the fourth quarter will be decided around the 23rd, right after the Chuseok holiday.

This year, the government introduced a fuel cost linkage system that periodically reflects increases or decreases in power generation costs in electricity rates. Although fuel costs such as international oil prices and liquefied natural gas (LNG) have been rising since the beginning of the year, the government froze electricity rates twice in the second and third quarters. Korea Electric Power Corporation (KEPCO), which could not reflect the increase in fuel costs in electricity rates, posted an operating loss of 193.2 billion won in the first half of the year, turning from an operating profit of 1.0136 trillion won in the same period last year.

Within the power industry, there is talk that the government will no longer be able to suppress electricity rate hikes in the fourth quarter. The import price of LNG per ton surged nearly 70% compared to a year ago, reaching $534.59 last month. Due to increased heating demand caused by global abnormal weather, a price surge is also expected this winter.

The variable factor is the Ministry of Economy and Finance. Electricity rates are decided through consultation between the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance, but there is a prevailing negative atmosphere within the Ministry of Economy and Finance regarding electricity rate hikes. While the Ministry of Trade, Industry and Energy deems an increase unavoidable, the Ministry of Economy and Finance is concerned about inflation. The upcoming presidential election in March next year is also a factor limiting electricity rate increases. Ultimately, it is widely expected that the Ministry of Economy and Finance will either put the brakes on the increase or limit it to a small scale.

An industry official said, "If power generation costs are not reflected in electricity rates for political reasons, it will ultimately worsen the financial situation of KEPCO, a public enterprise, placing a burden on the next administration," adding, "Even if the government raises electricity rates in the fourth quarter, it is highly likely that the increase will be minimal due to the Ministry of Economy and Finance’s intervention. As the fuel cost linkage system becomes ineffective, trust in government policy has also hit rock bottom."