Electricity and City Gas Rates, Will They Rise One After Another After Chuseok?

(Photo) [Image source=Yonhap News]

[Asia Economy Reporter Joo Sang-don] Electricity and city gas rates, which have been frozen until now, are expected to rise one after another after the Chuseok holiday.

According to the Ministry of Trade, Industry and Energy and Korea Electric Power Corporation (KEPCO) on the 12th, a decision will be made around the 23rd of this month, after the Chuseok holiday, on whether to raise electricity rates for the 4th quarter (October to December).

The government froze rates consecutively in the 2nd and 3rd quarters after introducing the fuel cost linkage system this year. The electricity rates to be applied from the 1st of next month will be determined based on the fuel costs incurred for electricity production from June to August, during which fuel costs increased. International oil prices (Dubai crude), which are reflected with a time lag on liquefied natural gas (LNG) prices, also rose to an average of $67 in the 2nd quarter of this year, up from $60 in the previous quarter.

KEPCO's growing deficit is also one of the reasons why it is difficult to keep electricity rates frozen any longer. It posted an operating loss exceeding 700 billion won in the 2nd quarter of this year. This is the first deficit in six quarters since the 4th quarter of 2019, due to the inability to reflect the increased fuel costs in electricity rates.

There are also forecasts that city gas consumer rates will inevitably rise. City gas retail rates are linked to the Korea Gas Corporation's wholesale rates, which are determined by raw material costs accounting for about 80% of the rates. Raw material costs reflect factors affecting LNG import prices such as international oil prices and exchange rates, and according to international LNG contract practices, international oil prices from an average of four months prior affect domestic rates. Despite the rise in raw material costs due to sharply increasing oil prices throughout the first half of this year, the government froze residential and general city gas rates in September. This marks the 15th consecutive month since the average 13.1% reduction in July last year.

Although raising rates ahead of the winter season, when city gas consumption increases, could be a burden for the government, both inside and outside the government expect that the accumulated factors for a rate increase over several months will make it impossible to artificially suppress rates any longer.

This content was produced with the assistance of AI translation services.