After the Chuseok holiday, electricity and city gas rates are expected to rise one after another. In the meantime, the government has tied up public charges despite cost pressure in consideration of the high inflation rate and the national economy suffering from the prolonged Corona 19. However, it is known that there is a limit to suppressing the factors of soaring cost increases, and considering that suppressing the price for a long period of time does more harm than good for the country as a whole, it is said that they are considering an increase.
|▲ Electricity and city gas rates are expected to rise after Chuseok. (Photo courtesy of Yonhap News)|
Limitation of artificial charge suppression due to cost pressure
The increase is unlikely to be large due to the presidential election and concerns about inflation
According to the Ministry of Trade, Industry and Energy and KEPCO on the 12th, it will be decided whether or not to raise electricity rates in the fourth quarter (October to December) around the 23rd of this month, after the Chuseok holiday.
After the government introduced the fuel cost indexing system this year, it was frozen for the second and third quarters in a row, but in the fourth quarter, it is putting more weight on the increase.
The electricity rate applied from the 1st of next month is determined based on the fuel cost for electricity production in June and August, and the fuel cost rose during this period.
Fuel coal for electricity, which accounts for the largest portion of electricity production, rose from around $90 per ton at the beginning of this year to $123 per ton in May, and has been on an upward curve ever since.
The international oil price (Dubai crude), which is reflected in the price of liquefied natural gas (LNG) with a time lag, also averaged $67 in the second quarter of this year, up from $60 in the previous quarter.
An official from the Ministry of Trade, Industry and Energy said, “It will have to go through consultations between ministries, but the position of the Ministry of Industry is that it should be reflected to some extent as fuel costs continue to rise.”
He said, “Even if there are cost fluctuation factors, if they are not reflected, the consumption structure will be distorted,” he said.
The growing deficit at KEPCO is also a burden. KEPCO suffered an operating loss of more than 700 billion won in the second quarter of this year as it failed to reflect the fuel cost increase in electricity rates. It is the first loss in six quarters since the fourth quarter of 2019.
An official from the Ministry of Trade, Industry and Energy explained, “We need to examine whether it is really desirable for public companies to continue to bear the factors of rate hikes, and whether it will help people’s lives in the long run.”
However, as the consumer price inflation rate has been in the 2% range for five consecutive months and the presidential election is in full swing, it is highly likely that the rate hike will only be small. The adjustment fee is changed up to 3 won compared to the previous rate within the range of 5 won per kWh.
Jeong Hye-jeong, a researcher at KB Securities, said, “We can expect an increase in electricity rates in the fourth quarter. The factor for the fuel cost adjustment is 6.6 won per kWh. analyzed that
It seems inevitable that city gas consumer rates will also increase.
The city gas retail rate is linked to the wholesale rate of KOGAS, and the wholesale rate is determined according to the raw material cost, which accounts for about 80% of the rate.
In the case of residential and general use, only when the raw material cost fluctuation factor exceeds ±3% every odd month, commercial and power generation use are automatically adjusted every month.
Raw material costs reflect factors that affect LNG import prices, such as international oil prices and foreign exchange rates. According to international LNG contracting practices, international oil prices affect domestic rates on average 4 months in advance.
Despite the rise in raw material costs due to the steep rise in oil prices throughout the first half of this year, the government frozen rates for city gas for housing and general use in September. This is the 15th consecutive month since the average cut of 13.1% in July last year.
In May, a 5.5% (wholesale rate) rate increase was caused due to fluctuations in oil prices and foreign exchange rates, but this was not reflected in the rate.
Raising rates ahead of winter, when city gas consumption increases, can be a burden on the government.
However, as the factors of increase have been accumulated for several months, the government inside and outside observes that it will no longer be possible to artificially suppress the rate.
If the raw material cost indexing system is not implemented in principle, price adjustments due to the increase in raw material cost will not be made, resulting in the accumulation of receivables for wholesale fees by KOGAS. Currently, the receivables of KOGAS are said to be about 1 trillion won.
The price of LPG, which is often used for home heating, small businesses such as restaurants, and taxi fuel, is also on the rise.
Domestic LPG importers raised LPG supply prices for three consecutive months from July to September. E1As of September, the domestic LPG supply price announced was 1,144.8 won/kg for household and commercial propane, 1,151.4 won/kg for industrial propane, and 1536.96 won/kg for butane.
As international LPG prices rose due to the steep rise in international oil prices, domestic LPG prices also rose. LPG import prices also rose in September, raising the possibility that domestic LPG prices would rise in October as well.
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