Analysts say the government and the ruling party should set a ‘deadline’ and quickly decide on a rate increase while delaying the decision to adjust electricity and gas rates in the second quarter. This is because public opinion about the rate increase could worsen before the summer when the weather is hotter. Concerns are also expressed that the financial structure of KEPCO and KOGAS could deteriorate further if electricity rate increases are limited or frozen during the summer. Energy experts advise that it is also necessary to create an objective public opinion on electricity rates in the summer to alleviate fear.
◇ Unusual postponement decision… “The worse it goes, the worse it gets.”
The government and ruling party decided on the 31st of last month at the party-government council held at the National Assembly in Yeongdeungpo-gu, Seoul, to decide on electricity and gas rates for the second quarter after additional discussions. This decision is unusual given that electricity rates are usually recalculated in the month before each quarter and gas rates in odd months.
It is known that there are still differences of opinion between politicians and the government as well as government departments. The Ministry of Trade, Industry and Energy is of the opinion that the amount of increase in the electricity rate should be high considering the financial structure of KEPCO, but the Ministry of Strategy and Finance considers the effects such as inflation. The government plans to adjust electricity and gas rates by gathering the views of energy experts and others. However, there is a possibility that the discussion will be delayed or almost frozen because the timing of the decision has not been determined.
In particular, considering the weather, which is getting hotter as the days go by, analysts say that if the discussion is long, it will be difficult to raise electricity rates to a large extent. When public opinion is sensitive to rate rises due to extreme heat, the burden on government and politicians increases.
◇ Financial ‘shaking’ of KEPCO and Gas Corporation… In the event of a freeze, an outcome is inevitable
The problem is that if the electricity and gas rates are not raised in the second quarter due to a delay in the negotiation, the financial structure of KEPCO and KOGAS could get even worse.
In particular, KEPCO has to sell more power during the summer months of July and August than in the other seasons, but it is difficult to solve the ‘reverse margin’ structure where there are losses even if sales are made electricity. According to KEPCO Power Statistics Monthly Report, KEPCO’s electricity purchase amount last year was about 88,863.3 billion won, and electricity sales income was about 66,301 billion won, recording a total loss of 22,833.2 billion won in the electricity sales sector only. KEPCO posted an operating loss of 32.6 trillion won last year, but issued an additional 31.8 trillion won in corporate bonds. The company maintains its business by offsetting operating losses with corporate bonds.
KOGAS also has receivables of 8,585.5 billion earned last year. Over the past winter, the receivables are estimated to have reached around KRW 12 trillion. Choi Yeon-hye, CEO of KOGAS, said, “Accounts receivable from KOGAS will reach 12 trillion won by the end of March.” As such, the pressure on the financial structure of KEPCO and KOGAS is intensifying, weakening the investment power of the domestic energy industry.
◇ Expert “We need to get rid of the fear of excessive electricity bills in the summer”
The Yoon Seok-yeol administration says that KEPCO and Gas Corporation are currently experiencing a crisis while they are not raising rates during the Moon Jae-in administration. However, Yoon Seok-yeol’s government also acts as a burden on the future if the ‘cost-based rate principle’ presented as a national task is not applied.
The energy expert emphasized that the government should step in and reduce excessive fear of energy rate increases. In the case of electricity rates, there are still fears about the increasing rate system, but since 2019, KEPCO has expanded and applied progressive sections in July and August, when electricity consumption is high.
Jeong Yeon-je, a professor of energy policy at Seoul National University of Science and Technology, said, “If you look at the residential electricity rate system, even if it charges 13 won per kWh, it will not be a big burden, and it has ‘to plan so that the electricity rate does not rise for the vulnerable.” Even if the same amount is used by expanding the range, the electricity rate is lower than in other seasons.”
Reporter Byun Sang-geun sgbyun@etnews.com
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