SMP Price Cap 'Mass Lawsuits' Expected... Constitutional Appeal Anticipated

SMP Cap System May Be Implemented as Early as This August... Strong Opposition from Power Industry
Private Power Association Preparing Legal Response via Yulchon... "Anti-Market System"
Some Power Companies Considering Reporting Officials... "Constitutional Appeal Immediately Upon Implementation"

[Image source=Yonhap News]

[Asia Economy Sejong=Reporter Lee Junhyung] Ahead of the introduction of the System Marginal Price (SMP), the private power generation industry has repeatedly announced legal actions. The government's measure to set a cap on SMP to reduce Korea Electric Power Corporation's (KEPCO) losses is deemed "anti-market." Some companies are even considering filing complaints against responsible public officials or submitting constitutional petitions.

According to the industry on the 9th, the Private Power Generation Association is currently preparing a provisional injunction to suspend the enforcement of the SMP cap system through the law firm Yulchon. The association is composed mainly of large corporations such as SK E&S and POSCO Energy. The association is also considering filing an administrative lawsuit if the SMP cap system is introduced. An association official stated, "We judged that the SMP cap system is an anti-market measure and internally decided that we cannot just let it pass," adding, "We are receiving legal reviews with litigation in mind if the cap system is implemented."

SMP Price Regulation... Industry Calls It "Anti-Market"

The SMP cap system is a policy that sets an upper limit on the SMP, which is the price KEPCO pays to power generators for electricity. Previously, the Ministry of Trade, Industry and Energy announced an administrative notice from the 24th of last month to the 13th of this month regarding the revision of the "Notice on the Upper Limit of Electricity Trading Prices," which centers on introducing the SMP cap system. This aims to limit the increase in SMP caused by fuel cost fluctuations to minimize KEPCO's losses. The government plans to implement the SMP cap system as early as August.

SMP is a key indicator that determines KEPCO's profitability. When electricity rates remain the same, the higher the SMP, the worse KEPCO's performance becomes. In fact, due to the sharp rise in international oil prices, SMP soared, and KEPCO's profitability deteriorated rapidly. In the first quarter alone, KEPCO posted a record loss of 7.8 trillion won. This is why the government intends to artificially regulate SMP to reduce KEPCO's losses.

The problem is that industry opposition is growing stronger. Private power generators are raising their voices against the SMP cap system, saying it "goes against market logic." Related associations have recently held rallies and press conferences consecutively at the Presidential Office and the Government Complex Sejong. The industry's consistent argument is that the introduction of the SMP cap system, which compromises the profitability of private power generators, is unacceptable.

Limits to Electricity Rate Increases... More Lawsuits Expected

However, the government maintains that the introduction of the SMP cap system is inevitable. Without the SMP cap system, reducing KEPCO's losses would require a significant increase in electricity rates, but inflationary pressures are severe. Raising electricity rates, which directly affect the livelihoods of ordinary citizens, is likely to trigger public backlash. Another reason for introducing the SMP cap system is the legal limit on the extent of electricity rate hikes under current law.

The government and industry are not completely disconnected. The Ministry of Trade, Industry and Energy will hold a second meeting with the private power generation industry regarding the SMP cap system this afternoon. However, considering the government's firm stance on the SMP cap system and the lack of significant outcomes from the first meeting held last month, this meeting is also likely to end without major progress. A ministry official said, "(The meeting is) to check if there are any unexpected issues," adding, "It is not yet the stage to consider suspending or postponing the SMP cap system."

"Strong Opposition to the Electricity Wholesale Price Cap!"
(Sejong=Yonhap News) Representatives of the Korea Solar Power Generation Business Association held a rally on the 8th in front of the Ministry of Trade, Industry and Energy at the Government Complex Sejong in Sejong City, shouting slogans opposing the Korea Electric Power Corporation's electricity wholesale price (SMP) cap. 2022.6.8
Photo by Yonhap News
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Once the SMP cap system is implemented, a wave of lawsuits against the government is expected. The industry has already announced strong legal responses. The Korea Photovoltaic Power Generation Association is considering filing a complaint against the Ministry of Trade, Industry and Energy officials for abuse of authority and breach of duty. The Korea Solar Power Business Association plans to file a constitutional petition immediately upon the implementation of the SMP cap system.

There is also an opinion that regulating the gas prices for power generation paid to Korea Gas Corporation should come first. It is pointed out that prematurely introducing the SMP cap system could suppress private companies and distort the power generation market. Professor Yoo Seunghoon of the Department of Energy Policy at Seoul National University of Science and Technology explained, "Korea Gas Corporation is the only energy operator implementing a receivables system, so it suffers little damage from price regulation," adding, "If raising electricity rates is difficult, regulating gas prices should be the alternative."

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