Electricity and Gas Prices Below Cost... KEPCO Faces 6.5 Trillion KRW Loss by Q3, Gas Corporation's Operating Profit Down 24% (Comprehensive)

KEPCO, Cumulative Sales of 65.6865 Trillion KRW < Operating Expenses of 72.1399 Trillion KRW
Gas Corporation, Cumulative Operating Profit Decreases by 321.6 Billion KRW

Korea Electric Power Corporation (KEPCO) recorded an operating profit of about 2 trillion won in the third quarter of this year, but on a cumulative basis for the year, operating expenses such as power purchase costs still exceeded sales revenue, resulting in a deficit of approximately 6.5 trillion won for this year alone. Korea Gas Corporation (KOGAS) also saw a significant reduction in operating losses by supplying city gas below cost.

KEPCO Returns to Profit After 10 Quarters... But Still Can't Smile

On the 13th, KEPCO announced that its consolidated operating profit for the third quarter was 1.9966 trillion won, marking a return to profitability after 10 quarters.

Sales revenue increased by 23.8% compared to the same period last year (19.773 trillion won), reaching 24.47 trillion won. Electricity sales revenue rose from 18.4882 trillion won to 23.1641 trillion won during the same period, while operating expenses, including fuel costs and power purchase costs, increased from 27.3039 trillion won to 22.4734 trillion won.

Looking at the cumulative figures from the first to the third quarter, the situation remains challenging. The cumulative operating loss for this year is 6.4534 trillion won. Although cumulative sales revenue increased by 13.9214 trillion won from 51.7651 trillion won in the first to third quarters of last year to 65.6865 trillion won this year, operating expenses reached 72.1399 trillion won.

Compared to the same period last year, the main factors for increase and decrease are as follows: despite a 0.3% decrease in sales volume, electricity sales revenue increased by 13.8281 trillion won due to a 29.8% rise in the sales unit price from 116.4 won per kilowatt-hour (kWh) in January-September last year to 151.1 won. Subsidiaries' fuel costs decreased by 2.6599 trillion won, but power purchase costs from private power producers increased by 267.4 billion won. KEPCO explained, "Although subsidiary power generation decreased due to reduced power demand, power purchases increased due to the entry of new private coal power plants. Also, fuel costs of subsidiaries decreased by 10.9% due to falling energy prices, but power purchase costs through the power market increased by 0.9%."

The power industry expects KEPCO to find it difficult to sustain profitability in the future. A KEPCO official said, "Although operating profit was recorded in the third quarter on a consolidated financial statement basis due to five tariff adjustments and fuel price stabilization since April, the sustainability of profits is uncertain due to international oil price and exchange rate uncertainties caused by the Israel-Hamas war." He added, "We will do our best to thoroughly and swiftly implement the self-help efforts promised to the public to normalize management."

KOGAS Records 1.0238 Trillion Won Operating Profit in First 3 Quarters... Down 24% Year-on-Year

KOGAS is in a similar situation. On the same day, KOGAS announced that its cumulative operating profit for the third quarter was 1.0238 trillion won, down 321.6 billion won (-24%) from 1.3454 trillion won the previous year.

A KOGAS official explained, "The decrease in operating profit is mainly due to the settlement of revenues from previous years and the expansion of gas fee support for vulnerable groups. We supply liquefied natural gas (LNG) raw materials at cost without profit, and the raw material costs temporarily recorded as revenue during the 2022 settlement process were deducted from the 2023 operating profit (291.7 billion won)."

Additionally, due to government policies expanding support for vulnerable groups during the winter season (December to March), city gas fee support increased sixfold from 96,000 won to 592,000 won, resulting in a temporary operating profit decrease (202.2 billion won) for KOGAS.

Accounts receivable also increased significantly. KOGAS classifies sales losses as accounts receivable, which is one of its assets, during accounting. In other words, the amount lost from selling gas is not recorded as a 'deficit' but as 'accounts receivable.' KOGAS's accounts receivable for city gas residential use in the third quarter reached 12.5202 trillion won, an increase of 276.7 billion won compared to the end of the first half. The accounts receivable balance at the end of 2022 was 8.5856 trillion won.