Korea Electric Power Corp. (KEPCO) and the Ministry of Trade, Industry and Energy (MOTIE) have decided to raise electricity rates by 5 won per kWh from July.
The raise is insufficient to ease snowballing losses KEPCO has sustained, so the government is considering additional electricity rate hikes.
Experts agree that people should shoulder the burden from the previous President Moon Jae-in government’s policy of weaning the country off nuclear power.
MOTIE convened a meeting of the Electricity Regulatory Commission on June 27 and decided to increase a fuel cost adjustment fee for the period between July and September by 5 won per kWh.
The permissible highest and lowest levels of the fuel cost adjustment fee were originally set at between plus-3 won and minus-3 won on a quarterly and between plus-5 won and minus-5 won on a yearly basis, but the Electricity Regulatory Commission decided to remove the quarterly cap of the fuel cost adjustment fee this time, giving a 5-won electricity rate hike the go-ahead.
The latest raise in the fuel cost adjustment fee is the first in nine months, since the fourth quarter of last year, when the government raised electricity rates in accordance with the fuel cost indexing system.
MOTIE said the late electricity rate hike will add by 1,535 won per month to the bill of a four-member family using a monthly average of 307kWh. When value-added tax and other fees are reflected, the additional bill would go up to about 1,700 won monthly.
The government did not raise electricity rates in order to stabilize general prices in the first and second quarter of the year, despite international fuel cost hikes.
At that time, international fuel costs soared in the wake of the Russian invasion of Ukraine and other uncertainties, causing KEPCO to suffer about 7.8 trillion won in operational losses in the first quarter of the year.
Market analysts warned that if electricity rates are not raised, KEPCO would see its operational losses snowball to more than 30 trillion won during the whole of this year.
The reason behind the government’s approval of the latest electricity rate hike despite inflation pressure is owed to KEPCO’s snowballing losses.
The former president Moon government’s anti-nuclear power policy required Korea to buy more expensive liquefied natural gas, instead of relying on cheaper nuclear power, causing KEPCO to shoulder a financial burden.
Industry sources said the previous government had frozen electricity rates for fear that its policy of weaning Korea off nuclear power might be undermined.
Prof. Yoo Seung-joon of Seoul National University of Science and Technology said losses sustained by KEPCO were primarily attributable to the previous government’s freezing of electricity rates based on the rationale the nation could be weaned off nuclear power without additional costs.
The new government gave the latest electricity rate hike the green light, seeing it as impossible to freeze electricity rates any longer.
KEPCO and nine subsidiary power company executives decided to return their performance pay received prior to the latest electricity hike. They also decided to secure cash and reduce debts by disposing assets.
Industry analysts share the view that power companies’ self-rescue measures and latest electricity rate hike are insufficient to make a dramatic turnabout in the financial situation of KEPCO.
The latest 5-won increase in electricity rates could have an effect of seeing KEPCO improve 1.3 trillion won financially this year, so that is not enough, they said.
As a result, the government is considering another electricity rate hike.
