Government Delays Q4 Electricity Rate Announcement Originally Scheduled for 21st
KEPCO Selling Electricity at a Loss... "Need to Raise by 50 Won per kWh"
[Asia Economy Sejong=Reporter Lee Junhyung] The government has abruptly postponed the decision to raise electricity rates for the fourth quarter, which was scheduled for the 21st. Analysts say the government is deeply concerned about the high inflation and the electricity rate hike.
Korea Electric Power Corporation (KEPCO) announced on the 20th that it has temporarily postponed the schedule to disclose the fuel cost adjustment unit price for the fourth quarter. KEPCO originally planned to announce whether to raise the fuel cost adjustment unit price for the fourth quarter on the 21st. However, the Ministry of Trade, Industry and Energy, the competent authority, notified that inter-ministerial consultations on the fourth quarter electricity rates have not been completed. A KEPCO official explained, "We were informed that the fuel cost adjustment unit price for the fourth quarter will be finalized after receiving the results of inter-ministerial consultations."
The fuel cost adjustment unit price is a component of electricity rates and is adjusted quarterly according to fluctuations in fuel costs. The government has implemented a fuel cost linkage system since last year to reflect changes in fuel costs such as international oil prices in electricity rates, but it has practically not functioned. This is because the government has consistently suppressed electricity rate hikes citing price stabilization. In fact, the fuel cost linkage system has only worked as intended once, in the third quarter of this year.
KEPCO insists that electricity rates for the fourth quarter must be raised significantly. This is because the delay in raising electricity rates has solidified a 'reverse margin' structure where electricity is sold at a loss. Accordingly, KEPCO recently submitted a proposal to the Ministry of Trade, Industry and Energy to raise the fuel cost adjustment unit price by 50 won per kWh for the fourth quarter. This means that electricity rates need to be increased by an additional 50 won per kWh for KEPCO to sell electricity without incurring losses in the fourth quarter of this year.
The problem is that the likelihood of the fourth quarter electricity rates being raised as KEPCO proposed is low. When the government decided on electricity rates for the third quarter this year, KEPCO also reported that the fuel cost adjustment unit price should be raised by 33.6 won per kWh. However, the actual increase was only 5 won per kWh. Even this figure was raised after the government revised regulations limiting the fuel cost adjustment unit price increase to 3 won per quarter.
The high inflation situation is also a variable. The Bank of Korea expects the consumer price inflation rate to reach 5.2% this year. If the consumer price inflation rate records in the 5% range as the Bank of Korea forecasts, it will be the highest since 1998 (7.5%). From the government's perspective, significantly raising electricity rates, which are directly related to the livelihood of ordinary people, is inevitably burdensome. Accordingly, price authorities such as the Ministry of Economy and Finance are reportedly opposing additional increases in the fuel cost adjustment unit price.
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