KEPCO, Record-Breaking Deficit and the Possibility of Electricity Rate Hikes?

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Dongwoo Lee] Korea Electric Power Corporation (KEPCO) recorded a record operating loss close to 8 trillion won in the first quarter of this year, drawing attention to the decision on whether to raise electricity rates in the third quarter next month.

According to related industries on the 15th, KEPCO will announce the decision on the third quarter electricity rate increase on the 20th of next month. Electricity rates consist of basic charges, electricity consumption charges (standard fuel cost), climate environment charges, and fuel cost adjustment charges.

The third quarter electricity rates will be determined based on fuel costs from March to May. As raw material prices, which surged at the beginning of this year, are reflected in fuel costs from the second half of the year, the wholesale price of the electricity market (SMP) is also expected to rise sharply.

According to PetroNet, the oil information site of Korea National Oil Corporation, the price of Dubai crude oil, which was in the $50 range per barrel at the beginning of last year, exceeded $110 in March this year and is currently at $105 this month.

The Presidential Transition Committee announced last month that it would strengthen the principle of cost-based electricity rates, increasing the likelihood of an electricity rate hike.

KEPCO also emphasized, "Considering the prolonged COVID-19 pandemic and high inflation in our country, we have minimized rate increases, and domestic companies have hedged the risk of rising raw material prices based on KEPCO's losses," adding, "To ensure stable power supply and induce efficient energy consumption, it is necessary to gradually normalize electricity rates reflecting cost fluctuations."

However, if electricity rates are raised, the potential burden due to inflation is a challenge. There are also views that it will be difficult to raise rates ahead of the summer season when electricity consumption increases significantly. Additionally, with local elections scheduled in June, it is analyzed that the government will find it difficult to raise public utility rates.

Earlier, KEPCO's operating profit in the first quarter of this year decreased by 8.3525 trillion won compared to the same period last year, resulting in a loss of 7.7869 trillion won.