Ministry of Economy and Finance "Public Utility Fee Management"... Will Q2 Electricity Rate Hike Be Blocked by Price Instability?

Deputy Minister Gi Jae "Stable Management of Public Utility Rates in Q2"... Ministry of Industry "Concerns Over Short-Term Factors Reflecting in Electricity Rates"
KEPCO to Announce Q2 Electricity Rates Including Fuel Cost Linkage on the 22nd

Kim Yong-beom, First Vice Minister of the Ministry of Economy and Finance, is delivering a keynote speech at the 'Innovation Growth Strategy Review Meeting and Korean New Deal Review Task Force' held on the 19th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

[Sejong=Asia Economy Reporter Kwon Haeyoung] As the government announced a policy to stably manage public utility rates amid concerns over price instability, attention is focused on whether the electricity rate hike in the second quarter will be halted. Recently, with the sharp rise in liquefied natural gas (LNG) prices, the market has anticipated that, according to the 'fuel cost linkage system' introduced this year, electricity rates could be raised as early as the second quarter.

Kim Yongbeom, First Vice Minister of the Ministry of Economy and Finance, said on the 19th, "We will manage public utility rates stably in the second quarter to minimize the impact on consumer prices," adding, "We will also actively strengthen support for export companies and resolve difficulties so that the rise in oil prices can become an opportunity."

As the Ministry of Economy and Finance steps up price management, the market expects that the second quarter electricity rate hike may hit the government's inflation concerns. Electricity rates have a broader impact on the economy than other goods and services. From the government's perspective, it cannot ignore the aftershocks that would follow if electricity rates rise.

The Ministry of Trade, Industry and Energy, the relevant department, is equally perplexed by the recent surge in LNG prices. The ministry is examining whether the rise in LNG and oil prices is a short-term trend or a mid-to-long-term trend.

An official from the Ministry of Trade, Industry and Energy said, "The increase in fuel costs in the first quarter is partly due to the cold wave last winter," adding, "There are concerns about whether it is appropriate to reflect short-term factors in the rates. If fuel costs surged due to a short-term external shock, I think it is right to absorb it within the system framework rather than reflecting it in electricity rates moment by moment." He continued, "KEPCO has submitted the calculation results of the adjustment rate based on fuel cost changes, and after consultation with the Ministry of Economy and Finance, the adjustment unit price for the second quarter will be notified to KEPCO."

Meanwhile, KEPCO will announce the second quarter electricity rates reflecting fuel cost fluctuations on the 22nd. With LNG prices rising rapidly recently, KEPCO is now in a position to raise electricity rates. According to Japan's Ministry of Economy, Trade and Industry, the LNG price on a delivered basis jumped from $6.5 per million BTU (British Thermal Unit) at the end of December last year to $16.3 last month. LNG accounts for 37.4% of domestic power generation, making it a factor for electricity rate hikes. In the securities industry, there is an analysis that if the LNG price increase is reflected, the fuel cost adjustment unit price for the second quarter will rise by 2 won per kilowatt-hour (kWh).

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