Government Contemplates 4th Quarter Electricity Rates... Variables Are 'International Oil Prices and Inflation'

The government is repeatedly deliberating on whether to raise electricity rates in the fourth quarter. Although there is a need for an increase due to Korea Electric Power Corporation's (KEPCO) accumulated deficit exceeding 47 trillion won and the rising trend of international oil prices, there is a high possibility that an increase in electricity rates could trigger inflationary pressures.

According to the Ministry of Trade, Industry and Energy and the Ministry of Economy and Finance on the 3rd, the government is discussing whether to raise rates in the fourth quarter.

Earlier, on the 21st of last month, KEPCO decided to maintain the fuel cost adjustment unit price for the fourth quarter (October to December) at 5 won per kilowatt-hour (kWh), the same as the previous quarter.

The fuel cost adjustment unit price, determined by the 21st of the month before each quarter begins, is calculated to flexibly reflect changes in fuel costs such as bituminous coal, liquefied natural gas (LNG), and bunker C oil (BC oil) over the previous three months in the electricity rates for that quarter. The fuel cost adjustment unit price is applied within a range of ±5 won per kWh, and the maximum rate of 5 won is already in effect.

Since electricity rates consist of a basic charge, electricity consumption charge (standard fuel cost), climate environment charge, and fuel cost adjustment charge, there remains a possibility of an increase in electricity rates in the fourth quarter. At the time, a government official stated, "Only KEPCO's announced fourth-quarter fuel cost adjustment unit price was frozen, and the decision on whether to raise electricity rates will be made after comprehensively reviewing various factors such as international oil prices," adding, "However, we are not reviewing with a predetermined direction such as increase or freeze."

Electricity rates, which rose consecutively in the first and second quarters this year and were frozen in the third quarter, may increase in the fourth quarter. This is because KEPCO's accumulated deficit has reached 47 trillion won, and the structure of losing money with every unit of electricity sold continues.

According to the Monthly Electricity Statistics Report, in May, the electricity sales price to consumers was 138.8 won per kWh, exceeding the power purchase price from power plants of 132.4 won, escaping the negative margin structure for the first time in 10 months. However, the margin, which was over 31 won in June, sharply decreased to 7.2 won in July. Ultimately, KEPCO's cumulative fuel purchase price from January to July this year was 154.5 won per kWh, still higher than the sales price of 148.9 won.

The rising international oil prices are also increasing the need to raise electricity rates. According to the Ministry of Trade, Industry and Energy, as of the 3rd, Dubai crude oil was priced at $93.12 per barrel, up $11.05 (13.46%) from the beginning of the year.

An electricity meter is installed in a residential area in Dobong-gu, Seoul, on the 30th, 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@