[Column] The Government's 'Trick' in Raising Electricity Rates

Fuel Cost Adjustment Rate 'Frozen'... No Mention in Electricity Rate Adjustment Proposal

An electricity meter was installed in a residential area in Dobong-gu, Seoul, on the 30th of last month, ahead of Korea Electric Power Corporation's announcement of the fuel cost adjustment unit price for electricity rates in the fourth quarter. Photo by Jinhyung Kang aymsdream@

[Asia Economy Sejong=Reporter Lee Junhyung] There is a ‘blind spot’ in the government’s electricity rate adjustment plan for the 4th quarter announced last week. It is that there is no mention at all of the fuel cost adjustment unit price, which is a component of the electricity rate. The fuel cost adjustment unit price is an item adjusted quarterly according to fluctuations in fuel costs such as international oil prices. Although the 4th quarter electricity rates increased due to the rise in global energy prices, ironically, the fuel cost adjustment unit price was frozen.

The government’s intention seems clear. They did not want to disclose the fact that the fuel cost adjustment unit price was frozen. Initially, during the presidential transition committee period, the current administration declared a ‘cost-based electricity rate policy’ based on market principles. This was why they revised the existing regulation that limited quarterly adjustment to 3 won and raised the fuel cost adjustment unit price by 5 won per kWh in the 3rd quarter. However, the increase in the fuel cost adjustment unit price became ‘zero’ after just one quarter.

Of course, the government has its reasons. They cannot arbitrarily raise electricity rates amid high inflation. Since electricity rates are directly linked to the livelihood of ordinary people, it could lead to public backlash. Accordingly, the price authorities reportedly strongly opposed raising the fuel cost adjustment unit price during the electricity rate negotiation process.

The problem lies with Korea Electric Power Corporation (KEPCO), which has fallen into a ‘deficit swamp.’ The securities industry expects KEPCO to incur a deficit exceeding 35 trillion won this year. Although energy prices have soared, with liquefied natural gas (LNG) import prices nearly tripling over the past year, the fuel cost adjustment unit price has essentially remained stagnant.

The government’s position is that they indirectly reflected fuel cost fluctuations in electricity rates by raising the electricity consumption charge. However, the fact remains that the fuel cost linkage system did not function. The fuel cost linkage system worked as intended only once, in the 3rd quarter.

With this rate adjustment, the government sent a ‘signal’ to the market that the fuel cost linkage system may not operate normally in the future. The government’s ‘cost-based electricity rate policy’ proclaimed since the transition committee period has become meaningless. Ultimately, the government’s declaration to respect market principles became an empty promise after just one quarter.