KEPCO Unable to Raise Electricity Rates in Q3... Cumulative Deficit Resolution Uncertain (Comprehensive)

Fuel Cost Adjustment Unit Price Maintained at 5 Won per 1kWh as Current

Electricity rates for the third quarter (July to September) of this year have been frozen. This is interpreted as a measure to reduce the increasing burden of cooling costs ahead of the summer season when air conditioner usage rises. However, by not raising electricity rates in the third quarter, Korea Electric Power Corporation (KEPCO) inevitably faces continued deficits.

On the 21st, KEPCO announced that the fuel cost adjustment unit price (rate) for the third quarter will be maintained at 5 won per 1kWh (kilowatt-hour), the same as the current rate.

The third quarter fuel cost adjustment unit price is calculated by multiplying the conversion factor by the variable fuel cost value, which is the difference between the actual fuel cost and the standard fuel cost averaged over the previous three months (March to May).

Due to the rise in fuel prices such as bituminous coal and liquefied natural gas (LNG), the actual fuel cost increased to 571.30 won per kilogram. Accordingly, KEPCO initially calculated the fuel cost adjustment unit price at 10.2 won per kWh, but applied the consumer protection cap (5 won/kWh), finalizing it at 5 won, the current rate.

Electricity rates consist of a basic charge, electricity consumption charge (standard fuel cost), climate environment charge, and fuel cost adjustment charge. With the fuel cost adjustment unit price maintained at the current level and no adjustments made to other electricity rate components including the consumption charge, the overall electricity rate for the third quarter has been frozen.

The rate freeze for the third quarter was somewhat anticipated. On the 14th, Kang Kyung-sung, Vice Minister of the Ministry of Trade, Industry and Energy, stated at a press briefing, "Considering the burden on the public, it is difficult to raise rates," and added, "We need to look at the public burden and adjust the pace accordingly." This is because rates have already been raised five times since last year, and international energy prices are showing a downward trend. As of the 21st, Dubai crude oil was priced at $77.44 per barrel, down $4.63 (5.64%) from the beginning of the year. LNG prices have also recently dropped to $676.6 per ton, down $618.9 (47.77%).

This year, electricity rates have increased by 13.1 won per kWh in January and 8.0 won in May, totaling 21.1 won. However, this is less than half of the initially proposed appropriate annual electricity rate increase of 51.6 won for this year, which the government set as a target to eliminate KEPCO's accumulated deficit by 2026. Considering that the second quarter electricity rate hike was delayed by a month and a half amid controversy and only slightly increased, it is unlikely that electricity rates will rise in the fourth quarter this year, especially with the upcoming parliamentary elections next year.

KEPCO's accumulated deficit over two years from 2021 to last year reached 38.5 trillion won. In the first quarter of this year alone, it recorded a deficit of 6.2 trillion won, bringing the total accumulated deficit to 44.7 trillion won. KEPCO's large-scale deficit is due to a negative margin structure where the purchase price of electricity is higher than the selling price. However, according to KEPCO's monthly power report, the 'negative margin'?the difference between the power purchase price (144 won per kWh) and the selling price (136.2 won)?increased from 17.2 won in January, 14.5 won in February, and 34 won in March, but significantly decreased to 7.8 won in April. Although the negative margin is shrinking, it is still insufficient to eliminate the deficit.

In the securities industry, KEPCO is expected to continue operating losses in the second quarter as well. According to the securities information provider FnGuide, KEPCO's estimated operating loss for the second quarter is 2.23 trillion won. The total deficit for this year is projected to reach 7.4 trillion won.

Jeong Hye-jung, a researcher at KB Securities, said, "Considering the already high fuel costs, the previous electricity rate hikes are expected to be insufficient to offset these costs," adding, "A stable operating profit that is not affected by external variables, that is, a fuel cost-linked electricity rate system, is necessary."

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