Korea Electric Power Corp.’s (KEPCO) posting operating losses in the third straight quarter is raising the possibility that electricity charges could be on their way up.

KEPCO has been experiencing difficulties stemming from rising fuel costs caused by international crude oil price hikes, and a plunge in the operating rate of nuclear power units, caused by increased maintenance. Making matters worse, the government recently announced relief steps to lower households’ electricity charges for July and August due to the unprecedented heat spell.

KEPCO President Kim Jong-kap floated the need to raise electricity charges in a Facebook post in which he compared higher bean curd, fuel prices and electricity charges. The hardships KEPCO is experiencing is expected to be exacerbated as the utility company is burdened with higher fuel costs in the wake of the government’s energy paradigm shift to weaning Korea off nuclear power.

The government took the temporary relief measure as concern has been rising about soaring electricity bills, and more people have begun to call for the abolishment of the progressive charging system. The Ministry of Trade, Industry and Energy (MOTIE) decided to raise the cap of electricity consumption for the first and second stage rate of the progressive charging system by 100kWh as a temporary relief measure to alleviate the burden of electricity costs to households. The progressive charging system is divided into three stages.

The 1st stage rate of 93.3 won per kWh is imposed for use of electricity of 200kWh or less, the second-stage rate of 187.9 won per kWh is levied for electricity use between 201kWh and 400kWh, and the third-stage rate of 280.6 won per kWh is imposed for 400kWh or more. In accordance with the relief measure, the 1st stage rate of 93.3 won per kWh will be imposed for using electricity of 300kWh or less, and the second-stage rate of 187.9 won per kWh will be levied for electricity between 301kWh and 500kWh. Households using electricity of 501kWh or more will be subject to the 3rd stage rate in the same way as currently.

Options of introducing new regimes of imposing electricity charges, including a ‘fuel cost-factored floating system” of determining electricity rates in which fuel price changes are factored in, become the subject of debate of late.

The government has begun to consider the introducing of the fuel cost-factored floating system. A consortium of AT Kearney and Samil PwC has been commissioned with a study on the introducing of a fuel cost-factored floating system. It remains to be seen if the MOTIE will introduce the fuel cost-factored floating system.

Under the fuel cost-factored floating system, electricity rates are adjusted automatically to price movements of power product fuels like crude oil, coal and gas. In 2016 when crude oil prices plunged to lower levels, city gas and district heat rates were lowered by 15.8 percent and 22.2 percent, respectively. At that time, the government once sought to apply the fuel cost-factored floating system to imposing of electricity charges, but the plan was cancelled.

The outcomes of the commissioned study on the introducing of a fuel cost-factored floating system are to be revealed soon. Based on the results of the study, the government plans to study specifics, including the analyzing of KEPCO’s financial impact through the simulation of the fuel cost-factored floating system. An option of offering incentives for power companies’ cost saving efforts is reportedly included in the results of the study on top of the introduction of the fuel cost-factored floating system. There are many obstacles left to make way for the introduction of the fuel cost-factored floating system, as a pros and cons controversy is expected to flare up down the road.