Electricity Rates Frozen in Q2... Possibility of Increase Remains in Second Half (Update)

KEPCO Maintains Fuel Cost Adjustment Rate Increase of +5 Won

Electricity rates for the second quarter of this year will be frozen. Since the government had previously announced a policy of freezing public utility rates in the first half of the year, this freeze was expected. However, there remains a possibility of a rate increase within the year due to Korea Electric Power Corporation's (KEPCO) accumulated deficit reaching 43 trillion won.

KEPCO announced on the 21st that it will maintain the fuel cost adjustment unit price for April to June at 5 won per kWh. Electricity rates consist of a basic charge, energy consumption charge, climate environment charge, and the fuel cost adjustment charge announced this time. The fuel cost adjustment charge is announced by the 21st of the month immediately preceding the start of each quarter.

An electric meter is installed in a commercial building in Seoul. Photo by Jinhyung Kang aymsdream@

This charge, which reflects short-term energy price trends, is calculated by multiplying the fuel cost adjustment unit price by electricity usage. It is determined within a range of ±5 won per kWh based on fuel cost fluctuations over the three months prior to the relevant quarter, including bituminous coal, liquefied natural gas (LNG), and bunker C oil (BC oil), with the current maximum rate of '+5 won' being applied.

Initially, KEPCO calculated the fuel cost adjustment unit price for the second quarter to be '-2.5 won' per kWh, reflecting the trend of stabilizing international energy prices. However, the Ministry of Trade, Industry and Energy, which determines electricity rates, considering KEPCO's financial situation and the significant amount of unadjusted fuel cost adjustment charges, notified KEPCO to continue applying the maximum allowed '+5 won' under the current fuel cost linkage system.

The electricity authorities did not increase the basic charge, energy consumption charge, or climate environment charge, which also affect electricity rates, so the electricity rates for the second quarter were effectively frozen.

This freeze of electricity rates in the second quarter was anticipated. The government decided to operate with a policy of freezing public utility rates in the first half of the year in its 2024 Economic Policy Direction announced earlier this year. Notably, consumer prices rose by 3.1% in February, marking a return to the 3% range just one month after falling to the 2% range in January.

For KEPCO, raising electricity rates is urgently needed to resolve the accumulated deficit. KEPCO recorded an operating loss of 4.5691 trillion won last year. The accumulated deficit has reached 43 trillion won, and total consolidated debt has increased to 202 trillion won. KEPCO President Kim Dong-cheol emphasized at the beginning of the year during the opening ceremony, "KEPCO's annual interest expenses this year are expected to be about 3.3 trillion won, which amounts to 9 billion won per day," adding, "Rate adjustments (increases) are absolutely necessary and urgent."

The power industry unanimously agrees that electricity rate increases should be considered in the second half of the year. Minister of Trade, Industry and Energy Ahn Deok-geun also stated during his confirmation hearing in January, "When the time is appropriate, we are considering a phased rate adjustment plan that comprehensively takes into account the burden on the public, exchange rates, and international energy prices."

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