[Column] Electricity Rate Hike Leaves Only Scars

"Currently, the internal atmosphere of the company is chaotic. I only learned about the CEO's resignation on the day of the announcement."

This is what an employee of Korea Electric Power Corporation (KEPCO) said on the afternoon of the 15th, when the government announced the electricity and gas rate hikes for the second quarter. Although the moment the electricity rate increase was decided, the voice clearly showed a sense of emptiness and exhaustion.

The discord between government ministries over the rate hike turned into political strife, and KEPCO bore the brunt of all the fallout. The government and ruling party claimed that KEPCO's deficits increased due to reckless management. They cited the rise in employees earning over a hundred million won annually, controversies over overseas business trips, wage increases, and performance bonuses as evidence.

KEPCO devised financial restructuring plans by squeezing dry towels three times, but the audit of Korea Energy Engineering University (KEPCO University) was extended, and the overt pressure for the resignation of KEPCO's head ultimately succeeded.

The government and ruling party's claim that KEPCO was recklessly managed is not entirely false. However, it is incorrect to say that reckless management alone caused KEPCO to incur deficits amounting to tens of trillions of won. As of last year, personnel expenses accounted for only 1.3% of KEPCO's budget. The largest portion was power purchase costs (88.5%). No matter how tightly personnel expenses are controlled, if electricity is sold at a loss, the structure makes it impossible to bear the deficit.

The core issue lies in the abnormality of electricity rates. This is not a new statement. It is also the reason why Minister Lee Chang-yang of the Ministry of Trade, Industry and Energy requested a rate increase from the government for several months. On the day of the second-quarter electricity rate announcement, Minister Lee emphasized in a public statement, "We will inevitably continue to be affected by the sharp rise in energy prices for a considerable period." This conveys the urgency that rate hikes will be necessary in the future to at least prevent KEPCO's deficits from growing.

The government decided to raise the second-quarter electricity rate by 8.0 won per 1 kWh (kilowatt-hour). KEPCO expects annual sales revenue of 2.7 trillion won from this increase. This amount does not even reach half of KEPCO's first-quarter deficit (6.1776 trillion won). In fact, this increase will have no meaningful impact on normalizing management.

The future is even more problematic. With only 45 days left, discussions on the third-quarter rate hike are not even being considered due to pressure from the government and ruling party. Excessive efforts to improve the financial structure could also burden the construction of transmission and substation facilities, which are essential for the stable supply of electricity. For KEPCO, this increase has only left wounds.