Electricity Rates Temporarily Frozen at Current Level
Possibility of Future Rate Adjustments Except for Fuel Cost Adjustment Charges Remains
The fuel cost adjustment unit price, which serves as the basis for setting electricity rates in the fourth quarter of this year, has been maintained at 5 KRW per kWh as it currently stands. However, since the government is considering adjusting the electricity consumption charge and the climate environment charge in light of Korea Electric Power Corporation's (KEPCO) financial crisis, the possibility of an electricity rate increase within the year remains.
KEPCO announced on the 23rd that it has decided to apply a '+5 KRW' fuel cost adjustment unit price for the period from October to December this year.
Electricity rates consist of a basic charge, electricity consumption charge, climate environment charge, and fuel cost adjustment charge. The announced fuel cost adjustment unit price serves as the calculation basis for the fuel cost adjustment charge. It is essentially a fine-tuning of electricity rates that occurs automatically every three months.
The adjustment unit price is determined by reflecting the changes in fuel costs, such as bituminous coal and liquefied natural gas (LNG), which are the production costs of electricity, over the three months immediately preceding the relevant quarter. Considering this, KEPCO should have set the fuel cost adjustment unit price for the fourth quarter at '-5 KRW' per kWh. However, the government decided to maintain the maximum value of +5 KRW, taking into account KEPCO's severe financial situation.
A KEPCO official explained, "The government notified us to continue applying 5.0 KRW for the fourth quarter fuel cost adjustment unit price, the same as the third quarter of this year, considering KEPCO's financial situation and the significant unadjusted amount of the fuel cost adjustment charge. Along with this, the government urged thorough implementation of self-help efforts for KEPCO's management normalization."
By freezing the fuel cost adjustment charge for the fourth quarter and not separately raising the other charges such as the basic charge, electricity consumption charge, and climate environment charge, the electricity rate for the fourth quarter will effectively be frozen for now. However, the possibility of an electricity rate increase through adjustments to the other charges still remains.
KEPCO has been accumulating deficits by selling electricity below production costs. Due to the sharp rise in international energy prices caused by the Russia-Ukraine war, it has accumulated a deficit of around 43 trillion KRW. As a result, KEPCO's debt, which was 108.8833 trillion KRW in 2014, surged to 202.4502 trillion KRW last year. Although KEPCO has recorded profits for four consecutive quarters recently due to the decline in international energy prices, it is still insufficient to resolve the massive debt accumulated over time. In fact, KEPCO spent 2.28 trillion KRW on interest expenses in the first half of this year alone, increasing its debt to 202.8905 trillion KRW.
The Ministry of Trade, Industry and Energy, the electricity authority, agrees on the necessity of adjusting electricity rates. Last month, Minister Andeok Geun of the Ministry said, "We are facing the fourth quarter, so there are many concerns. Although I cannot specify the timing, we are trying to normalize electricity rates as soon as possible," emphasizing, "We will raise electricity rates soon."
However, the Ministry of Economy and Finance, responsible for price control, is cautious. On the previous day, Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, appeared on a broadcast and said regarding the electricity rate increase, "Electricity rates have increased by about 50% since the Yoon Seok-yeol administration took office. It is important to assess how much the burden on the public has increased, and a comprehensive consideration of KEPCO's financial structure and energy prices is necessary."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
