[News Terms] Is the 'Yeollyobi Jojeong Danga' a Signal for Electricity Rate Freeze?

The fuel cost adjustment rate for the fourth quarter of this year has been frozen at 5 won per kWh, the same as the third quarter.

The fuel cost adjustment rate is one of the components of the electricity bill, determined by the 21st of the month prior to the start of each quarter. This rate was introduced to flexibly reflect changes in fuel costs such as bituminous coal and liquefied natural gas (LNG) in electricity prices, based on the fluctuations over the three months preceding the quarter. It was newly established when the electricity tariff system was restructured in December 2020. The government explained that it was introduced to periodically reflect fuel cost changes in electricity prices, thereby strengthening the price signaling function and increasing consumers' predictability regarding electricity tariff adjustments.

The fuel cost adjustment rate is calculated by multiplying the difference between the actual fuel cost and the standard fuel cost by a conversion factor. The actual fuel cost is the average price of bituminous coal, LNG, and other fuels over the previous three months, while the standard fuel cost is the average fuel cost over the past year. Fuel costs are calculated based on the trade customs clearance prices of LNG, coal, and oil announced by the Korea Customs Service. However, the adjustment fee can only vary by up to 3 won compared to the previous rate within a range of ±5 won per kWh. Additionally, if the upper or lower limit of ±5 won is reached, further increases or decreases are restricted. The freeze of the fuel cost adjustment rate for the fourth quarter was expected because the maximum rate of 5 won had already been applied in the third quarter. The Korea Electric Power Corporation calculates the fuel cost adjustment rate and submits it to the Ministry of Trade, Industry and Energy, which makes the final decision after consultations with related ministries.

The freeze of the fuel cost adjustment rate for the fourth quarter does not directly lead to a freeze in electricity rates. This is because the adjustment of the strategic quantity charge, another component of the electricity bill, has not yet been decided. Electricity bills consist of a basic charge, electricity consumption charge, climate environment charge, and fuel cost adjustment rate. Among these, the climate environment charge was increased by 1.7 won in the first quarter and it was decided to maintain this rate for the rest of the year.

Meanwhile, electricity rates have been raised by a total of 40.4 won per kWh over five occasions since April last year, reflecting the surge in international energy prices and the financial status of KEPCO. The increases were 6.9 won per kWh in April last year, 5 won in July, 7.4 won in October, 13.1 won in January this year, and 8 won in May.