President-elect Moon and President-elect Yoon Seok-yeol, this time overriding electricity price hikes By Hankyung

The electricity rate will rise by 6.9 won per kWh from next month due to the increase in the standard fuel cost. A manager looks at an electricity meter at an officetel in downtown Seoul on the 29th. By Kim Byung-eon, staff reporter

On the 29th, the government and KEPCO frozen the adjusted unit price of fuel cost for the second quarter, which is the key to electricity rates. As previously announced in December last year, it was decided to raise the electricity rate (standard fuel cost) and climate environment rate by 4.9 won and 2.0 won per kWh by 6.9 won. It is pointed out that this is the result of the Moon Jae-in administration and President-elect Yoon Seok-yeol’s shifting responsibility for the sensitive electricity rate hike ahead of the June 1 local elections. As a result of this decision, electricity rates for a four-person household that use an average of 307 kW a month will rise by 2,120 won per month from next month, but KEPCO’s loss structure continues and the operating loss is expected to reach 20 trillion won this year.

KEPCO initially proposed to the government on the 16th to raise the fuel cost adjustment unit price by 3.0 won per kWh in the second quarter. In order to make up for the loss caused by the sharp rise in international energy prices, it was necessary to raise it by 33.8 won per kWh, but in consideration of the maximum quarterly increase, it requested a 3.0 won increase. The Ministry of Trade, Industry and Energy, which is the responsible ministry, rejected even this after consultation with the relevant ministries.

The Ministry of Trade, Industry and Energy suggested the reasons for the rise in prices and the difficult life of the people due to COVID-19. However, it is pointed out that the responsibility for the electricity rate hike has been postponed to the Yoon Seok-yeol administration, which will take office on May 10. During the presidential election, President-elect Yoon promised to abolish the electricity rate hike in April, but after winning the election, the current government said that the issue of electricity rate increase should be resolved before the new government was launched. Recently, he showed signs of accepting a ‘slight increase’, saying, “This electricity rate is for the current government to decide.”

As a result, it is pointed out that the quarterly fuel cost adjustment unit price adjustment system introduced with the purpose of linking international energy prices and fuel costs has become ineffective due to political logic. The management burden of KEPCO, which is expected to experience the largest loss in history this year, has increased. If KEPCO does not raise the fuel cost adjustment unit price, it is expected to lose about 18 to 20 trillion won in operating loss this year. The problem is that this burden is ultimately passed on to the people. When KEPCO recorded its first loss in 2008, it received 668 billion won in public funds to make up for the loss. For the next six years, electricity rates were raised by 41.6%. Although the government raised only a portion of the necessary electricity rate increase (standard fuel cost and climate environment rate of 6.9 won + fuel cost adjusted unit price of 3.0 won), if KEPCO’s deficit increases, it will have to pay up with taxes later.

An energy expert pointed out, “It is unfortunate that electricity rates have become politicized while being swayed by power conflicts between new and old. ‘Fuel cost indexation system’ neutralized by political logic… KEPCO’s deficit is likely to reach 20 cents this year

Practically Freezing Electricity Rates For President-elect Yoon Seok-yeol, the bill to increase electricity rates in the second quarter is a kind of ‘compromise’. This is because, while limiting the increase in electricity rates by freezing the fuel cost adjustment unit price, the already announced base fuel cost and climate environment rate hikes were carried out as planned. It is an ordeal considering both President-elect Yoon’s promise to abolish the electricity rate hike in April and the snowballing deficit of KEPCO. However, due to political logic, KEPCO’s operating loss is expected to reach 20 trillion won this year as the realization of electricity prices continues to fail. Fuel cost indexation system Useless electricity rates are largely determined by three factors. It is a fuel cost adjustment unit price determined in consideration of the standard fuel cost, the climate environment rate, and the quarterly fuel cost increase, which are the basis for calculating the electricity cost.

The Moon Jae-in government introduced a fuel cost indexation system in January last year. Considering that international oil prices are expected to stabilize downward, it is judged that it is the right time to introduce a fuel price indexation system. However, contrary to expectations, the steps were twisted as international oil prices soared last year. The price of Dubai oil, which averaged $42.3 per barrel in 2020, soared to $69.3, up 64% last year. The price of liquefied natural gas (LNG) more than quadrupled from $4.4 per MMBtu to $18.6 per MMBtu during the same period. Due to the influence of Russia’s invasion of Ukraine this month, it has broken through the $80 level and continues to soar. Brent crude and West Texas Intermediate (USA), the benchmarks of international oil prices, exceed $100 per barrel.

Despite such a vertical increase in fuel costs, the government frozen the fuel cost adjustment unit price in the second quarter as in the second and third quarters of last year and the first quarter of this year. In the second quarter of this year, as an exception, the standard fuel cost and climate environment rate were raised, and the electricity rate rose from April.

The government cited price stability and the damage caused by COVID-19 as reasons to curb electricity prices. However, many observers believe that this is because it was not easy to make a decision to raise electricity rates, which affects voter votes ahead of the general election and local elections in June. As a result, KEPCO’s financial structure deteriorated last year, recording a loss of about 5.86 trillion won, the largest in history. In December of last year, the Moon Jae-in government announced that it would raise the standard fuel cost and climate environment rate as the electricity bill KEPCO’s deficit was not as serious as the political issue. The time was from the end of the presidential election in April. The standard fuel cost will be raised to 4.9 won per kWh in April and September, respectively, and the climate and environment rate will be raised by 2 won per kWh from April, and the government passed the hike on the 29th.

The problem is that electricity prices became a political issue during the presidential election. As a candidate, President-elect Yoon made a pledge to abolish electricity rate hikes, saying that the Moon Jae-in administration’s plan to increase electricity rates in April was “a trick to cover the reality of the nuclear phase-out policy.” He also promised not to raise electricity rates until COVID-19 stabilizes. However, it is known that the Ministry of Trade, Industry and Energy, which is the responsible ministry, explained to the takeover committee that it could not continue to freeze electricity rates. The transition committee recently took a step back, saying, “This electricity rate is a matter to be decided by the current government.” However, it was burdensome to be criticized for ‘non-fulfillment of promises’. Analysts inside and outside the transition committee say that they accepted a compromise plan that only freezes the fuel cost adjustment unit price. An official said, “In the case of the standard fuel cost, KEPCO held a board meeting in December last year and confirmed it through amendment of the terms and conditions. KEPCO KEPCO, a ‘bone sick’, has always insisted on the inevitability of raising electricity rates. Initially, the adjusted unit price for the second quarter was 33.8 won per kWh. This means that the loss caused by the increase in fuel costs can be compensated for by raising the adjusted unit price by 33.8 won from the previous 0 won. Even taking into account the 11.8 won per kWh increase that has been confirmed this year, KEPCO’s deficit this year is expected to reach 18 to 20 trillion won. Meritz Securities published a report and predicted that KEPCO’s loss would reach 19.9 trillion won this year even if the unit price of electricity this year rises 11% from the previous year.

Some European countries have raised electricity rates by 50% or more. Some critics point out that if the rate increase is suppressed in a way that is conscious of the election, etc., eventually the burden will have to be filled with the public’s blood tax.

Reporter Lee Ji-hoon/Eui-jin Jeong lizi@hankyung.com

‘Fuel cost indexation system’ neutralized by political logic… KEPCO’s deficit 20 percent this year…

KEPCO abruptly postpones the announcement of the adjusted unit price for electricity

KEPCO postpones 2Q electricity rate announcement… Can’t finish tuning with 尹

KEPCO to lose 20 trillion won this year… “We need to revise our pledge to freeze electricity rates”

Electricity bill freeze… KEPCO’s biggest loss in history

After the election… Electricity and gas prices are also going up.