Will Yoon's Pledge to 'Cancel Electricity Rate Hike' Be Put on Hold?... KEPCO on Alert Over 'Snowballing Deficit'

KEPCO Submits Fuel Cost Adjustment Rate Increase Proposal to Government... 3 KRW per kWh
Decision on Increase to Be Made on 21st of This Month... Transition Team Has Not Yet Reviewed
If Electricity Rates Remain Frozen, KEPCO's Deficit Expected to Reach 20 Trillion KRW... Yoon's Pledge May Be Deferred

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Lee Jun-hyung] Despite President-elect Yoon Seok-yeol's campaign promise to "cancel the electricity rate hike," there is a growing possibility that electricity rates will increase starting next month. The decision on whether to additionally raise electricity rates for the second quarter must be made by the 21st, but since the transition committee has not yet been launched, it is impossible to discuss related matters with the current government. Some speculate that the promise itself may be completely put on hold due to the sharp increase in Korea Electric Power Corporation's (KEPCO) deficit caused by soaring energy prices.

According to related ministries on the 16th, KEPCO submitted a proposal to the Ministry of Trade, Industry and Energy on the same day to raise the fuel cost adjustment rate by 3 won per kWh for the second quarter of this year. The fuel cost adjustment rate is a component of the electricity rate that reflects the cost KEPCO incurs to purchase fuel on a quarterly basis. The Ministry of Trade, Industry and Energy, which holds the final authority to decide electricity rates, must notify KEPCO of whether to raise rates by the 21st of this month after deliberations by the Electricity Committee. KEPCO plans to announce the second quarter electricity rate plan on the same day according to the ministry's decision.

KEPCO's current proposal is separate from the government's previously announced increase plan. Earlier, the government announced it would raise electricity rates by 4.9 won per kWh twice, in the next month and October, totaling 9.8 won. The climate environment charge will also increase by 2 won per kWh starting next month. If the fuel cost adjustment rate is also raised, the electricity rate for the second quarter will increase by 9.9 won per kWh.

Yoon Seok-yeol President-elect's Remarks at the Transition Committee Tea Time
(Seoul=Yonhap News) President-elect Yoon Seok-yeol is speaking at the transition committee tea time held on the morning of the 14th at the Financial Supervisory Service Training Institute office in Tongui-dong, Jongno-gu, Seoul. On the left is Ahn Cheol-soo, chairman of the transition committee. 2022.3.14 [Photo by National Assembly Press Photographers Group]
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The problem is that the transition committee has not even been able to review President-elect Yoon's pledge to "freeze electricity rates." A representative from Yoon's side said, "Discussion on freezing electricity rates is urgent, but since the Economic Second Division transition committee members have not been decided, it has not been reviewed," adding, "The possibility of the electricity rate pledge being put on hold cannot be ruled out."

Given this situation, there is speculation that the pledge may be scrapped. Above all, it is pointed out that there is hardly any time left to cancel the electricity rate hike. The decision on whether to raise the fuel cost adjustment rate for the second quarter will be made in five days. The existing April increase plan has already gone through KEPCO's board of directors, the Ministry of Trade, Industry and Energy's Electricity Committee, and consultations with the Ministry of Strategy and Finance. For President-elect Yoon to fulfill his pledge, the transition committee must deliver its opinion to the government within this month and restart all necessary processes to freeze electricity rates.

The outbreak of the Ukraine crisis after the pledge was made is also a variable. Energy prices such as international oil and natural gas have sharply risen over the past two months. As a result, the System Marginal Price (SMP), a key indicator determining KEPCO's profitability, averaged 197.32 won last month, more than double the same period last year (75.44 won). If electricity rates remain the same, KEPCO's profitability worsens as the SMP rises.

Professor Yoo Seung-hoon of the Department of Future Energy Convergence at Seoul National University of Science and Technology said, "KEPCO's debt is ultimately a debt that the public must repay," adding, "To preserve the purpose of the fuel cost linkage system, it is advisable to proceed with the existing increase plan as is."

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