Despite Electricity and Gas Price Hikes, KEPCO's Deficit Remains a 'Drop in the Ocean'

The government’s decision on the 15th to raise electricity and gas rates in the second quarter stems from growing concerns that the large accumulated deficits of energy public enterprises can no longer be ignored. The combined accumulated deficit (including unpaid receivables) of Korea Electric Power Corporation (KEPCO) and Korea Gas Corporation surpassed 50 trillion won as of the first quarter of this year, leading to the judgment that further delaying the rate hike could risk missing the golden time for business normalization. However, there are concerns that the current increase is far below the scale initially requested by the Ministry of Trade, Industry and Energy, which may delay the resolution of KEPCO’s and Korea Gas Corporation’s deficit management more than expected.

The Ministry of Trade, Industry and Energy projected that the combined increase in electricity and gas rates for the second quarter would raise the monthly burden for a four-person household by about 7,400 won on average. Specifically, a four-person household in an urban area using an average of 332 kWh (kilowatt-hours) of low-voltage electricity per month would see their electricity bill rise from the current 63,570 won to 66,590 won, an increase of 3,020 won, while the gas bill (based on a monthly usage of 3,861 MJ) would increase by 4,400 won per month. Previously, electricity rates were raised by 19.3 won per kWh last year and by 13.1 won per kWh in the first quarter of this year. Urban gas rates also sharply increased over the past year, with four hikes last year (in April, May, July, and October) totaling 5.47 won per MJ.

Difficulty in Resolving KEPCO’s Operating Deficit

The problem is that despite the second-quarter electricity and gas rate hikes, it is pointed out that these are insufficient to resolve the operating deficits of KEPCO and Korea Gas Corporation. According to the Monthly Electricity Statistics Report, in March this year, KEPCO purchased electricity at 173.3 won per kWh but sold it at 139.3 won, still incurring a loss of 34 won per kWh. KEPCO expects the current rate hike to increase annual electricity sales revenue by 2.66 trillion won. Compared to the operating loss of 6.2 trillion won in the first quarter of this year, the increase is clearly insufficient to resolve the deficit. Ultimately, the deficit will continue to accumulate even with this increase.

The deficit accumulated by KEPCO over two years since 2021 amounts to 38.5 trillion won. Korea Gas Corporation also had unpaid receivables totaling 8.6 trillion won as of the end of last year. Initially, the Ministry of Trade, Industry and Energy had informed the National Assembly that electricity rates should be raised by 51.6 won per kWh and gas rates by 10.4 won per MJ this year to resolve the deficits of energy public enterprises. However, the government and ruling party allowed an increase roughly half the size of the government’s request to minimize the burden on the public.

The government and ruling party explained that the scale of this increase was decided considering the decline in international energy prices. According to the Ministry’s raw material price information, the import price of liquefied natural gas (LNG) was $916.2 per ton in March, marking the lowest point since July last year. This represents a 29.3% ($379.4) decrease since the beginning of this year. Additionally, the upper limit on the electricity wholesale price (SMP) is expected to reduce electricity purchase costs.

However, the Ministry of Trade, Industry and Energy still insists that the originally requested rate hike (13.1 won per kWh) is necessary to resolve the accumulated deficits. Although electricity and gas rates have been continuously adjusted since last year and early this year, the accumulated factors from past rate hikes have not yet been fully resolved. Minister Lee Chang-yang of the Ministry said, “Although international energy prices, which surged due to the Russia-Ukraine war, are somewhat stabilizing, they remain higher than average. Even if the international energy market stabilizes, considering the up to six-month lag between international energy prices and domestic import prices, we will inevitably be affected by sudden rises in international energy prices for a considerable period going forward.”

Increased Burden on Low-Income Households

Although the increase is smaller than the Ministry’s requested rate hike, concerns remain that the burden on low-income households will inevitably increase. There are immediate worries about a summer cooling cost shock. With the average monthly electricity bill rising by around 3,000 won, the actual burden this summer could be even greater if the progressive rate system is applied.

The government plans to significantly strengthen support for energy-vulnerable groups to minimize damage. First, for energy-vulnerable groups such as basic livelihood security recipients and near-poverty households, the rate hike will be waived for one year up to the average usage amount. The welfare discount rate system currently operated by KEPCO will also continue to be supported. This provides electricity bill discounts ranging from 8,000 to 20,000 won per month and a 30% discount on monthly electricity bills for social welfare facilities.

The energy voucher program will also expand its target from heat- and cold-sensitive groups among basic livelihood security recipients for livelihood and medical reasons to include heat- and cold-sensitive groups among basic livelihood security recipients for housing and education reasons. Furthermore, the electricity bill installment payment system, which has been operated restrictively only for residential use, will be expanded to small business owners and root companies. The installment payment system, temporarily implemented from June to September this year, allows paying more than 50% of the monthly bill upfront and paying the remaining balance in installments over up to six months.

The government also emphasized the independence of decisions on public utility rate hikes. Lee Ho-hyun, Director of Electricity Policy at the Ministry of Trade, Industry and Energy, said at a briefing, “Because electricity rates have a significant ripple effect on the overall economy, objective and professional judgment is necessary in deciding electricity rates. Related research projects will be completed soon, and we plan to hear opinions from experts across various fields.” He added, “We will continue to propose welfare discount measures for vulnerable groups. Considering the impact on the financial situation of KEPCO and Korea Gas Corporation, we will make comprehensive judgments and propose measures accordingly.”

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