Electricity Rates to Rise in Q3... Confirmed Increase of 5 Won per kWh (Update)

Fuel Cost Adjustment Rate for Q3 Confirmed Increased by 5 KRW per kWh
Exceeded Maximum Quarterly Increase... Revised Linkage System Terms
Electricity Bill for 4-Person Household Up 1,535 KRW... Government Says "Increase Inevitable"

An electricity meter is installed at a commercial building in Seoul on the 27th, when the fuel cost adjustment unit price for electricity bills in the third quarter is scheduled to be announced. Photo by Jinhyung Kang aymsdream@

[Asia Economy Sejong=Reporter Lee Jun-hyung] The government has decided to raise electricity rates in the third quarter. From next month, the average monthly electricity bill for a four-person household is expected to increase by 1,535 KRW.

The Ministry of Trade, Industry and Energy announced on the 27th that the fuel cost adjustment rate for the third quarter will be raised by 5 KRW per kWh. The fuel cost adjustment rate is a component of the electricity bill that can be adjusted quarterly according to fluctuations in fuel costs such as international oil prices. However, the increase is limited to 3 KRW per quarter and 5 KRW annually.

The government's decision to raise the third quarter fuel cost adjustment rate by 5 KRW, exceeding the maximum quarterly increase of 3 KRW, is due to Korea Electric Power Corporation's (KEPCO) "snowballing deficit." Initially, KEPCO calculated that the third quarter fuel cost adjustment rate should increase by 33.6 KRW per kWh. This was based on the judgment that to avoid selling electricity at a loss amid soaring fuel costs, the adjustment rate for the third quarter needed to be raised by at least 33 KRW. However, KEPCO submitted a proposal to the government to raise the fuel cost adjustment rate by 3 KRW per kWh, applying the quarterly adjustment limit regulation.

The government considered increasing the third quarter fuel cost adjustment rate within the annual adjustment limit of 5 KRW. Accordingly, KEPCO prepared a revision of the terms and conditions to allow quarterly increases within the annual limit and applied for government approval. The government approved KEPCO's revised terms and finalized the plan to raise the third quarter electricity rates by 5 KRW per kWh.

Following the government's decision, electricity rates will be additionally increased by 5 KRW per kWh from next month through September. According to the Ministry of Trade, Industry and Energy, the average monthly electricity bill for a four-person household will rise by 1,535 KRW. Socially vulnerable households will bear an additional monthly electricity cost of about 1,600 KRW.

The government stated that it had no choice but to exceed the existing maximum quarterly increase of 3 KRW for the third quarter fuel cost adjustment rate. A ministry official explained, "Despite the severe situation such as high inflation, the adjustment of the third quarter fuel cost adjustment rate was an unavoidable decision due to KEPCO's financial conditions," adding, "This is because international fuel prices surged, causing a significant factor for electricity rate hikes."

Along with the decision to raise the fuel cost adjustment rate, KEPCO will implement discounts for vulnerable groups. This is to alleviate the burden of electricity rate increases on vulnerable groups amid the expected heatwave this summer. KEPCO plans to temporarily expand the discount limit by 40% for about 3.5 million households eligible for welfare discounts from next month through September.

Socially vulnerable groups such as persons with disabilities, national merit recipients, and basic livelihood security recipients will have their discount limits increased by the amount corresponding to the electricity rate increase due to the third quarter fuel cost adjustment rate hike. KEPCO will raise the discount limit for these groups by an additional 1,600 KRW, providing a maximum monthly discount of 9,600 KRW.

Meanwhile, KEPCO is also working on improving its financial structure. Recently, KEPCO formed an emergency countermeasure committee jointly with power group companies to identify assets that can be sold. KEPCO plans to reduce costs by more than 6 trillion KRW through business restructuring, austerity management, and other measures.