State utility's deficit snowballs due to excessively low power rates
The government raised the adjusted unit fuel cost ― a key element of the nation's electricity rates ― by 5 won per kilowatt-hour for the third quarter on Monday. The raised power rates will go into effect Friday, costing about 1,535 won ($1.20) more a month on average for a four-member family. Korea Electric Power Corp. (KEPCO) had asked the government to increase the unit cost by 33.6 won, claiming it is a minimal hike to avoid a snowballing deficit. Industry experts agree that the 5 won increase falls far short of filling the state utility's deficit.
KEPCO sustained an operating deficit of 7.78 trillion won in the first quarter, about 2 trillion won more than the losses for all of 2021. This is because the state utility's sales rose, but were eclipsed by surging operating costs due to higher oil and gas prices. Another reason was its inability to raise the price of electricity. Faced with unprecedented financial difficulties, the state utility is issuing corporate bonds almost daily. Market watchers say KEPCO's net loss could reach 30 trillion won this year, pointing out that the latest rate hike would be no more than a makeshift measure.
A more fundamental solution should fully reflect on the electricity rate the increase in the power generation cost resulting from skyrocketing fuel prices. That conforms to market principles and saves KEPCO. It can also induce consumers to save electricity. Korea's per capita power consumption is the third-highest in the world. It is largely due to the distorted electricity pricing system, in which the power charges fall far short of generation costs. Despite growing inflationary concerns, they can ill afford to remain content with the nominal increase in power charges, aggravating the problem instead of resolving it.
KEPCO is a state enterprise that will someday cover its deficit with taxpayers' money. Therefore, the government ought to change the absurd pricing system to link fuel cost hikes to power rates. However, the Yoon Suk-yeol administration is no less passive in raising electricity charges than its predecessor. As things stand now, it will be difficult to erase KEPCO's deficit without taking radical measures. Only when a better pricing system is in place can the state utility make both ends meet.
The government raised the adjusted unit fuel cost ― a key element of the nation's electricity rates ― by 5 won per kilowatt-hour for the third quarter on Monday. The raised power rates will go into effect Friday, costing about 1,535 won ($1.20) more a month on average for a four-member family. Korea Electric Power Corp. (KEPCO) had asked the government to increase the unit cost by 33.6 won, claiming it is a minimal hike to avoid a snowballing deficit. Industry experts agree that the 5 won increase falls far short of filling the state utility's deficit.
KEPCO sustained an operating deficit of 7.78 trillion won in the first quarter, about 2 trillion won more than the losses for all of 2021. This is because the state utility's sales rose, but were eclipsed by surging operating costs due to higher oil and gas prices. Another reason was its inability to raise the price of electricity. Faced with unprecedented financial difficulties, the state utility is issuing corporate bonds almost daily. Market watchers say KEPCO's net loss could reach 30 trillion won this year, pointing out that the latest rate hike would be no more than a makeshift measure.
A more fundamental solution should fully reflect on the electricity rate the increase in the power generation cost resulting from skyrocketing fuel prices. That conforms to market principles and saves KEPCO. It can also induce consumers to save electricity. Korea's per capita power consumption is the third-highest in the world. It is largely due to the distorted electricity pricing system, in which the power charges fall far short of generation costs. Despite growing inflationary concerns, they can ill afford to remain content with the nominal increase in power charges, aggravating the problem instead of resolving it.
KEPCO is a state enterprise that will someday cover its deficit with taxpayers' money. Therefore, the government ought to change the absurd pricing system to link fuel cost hikes to power rates. However, the Yoon Suk-yeol administration is no less passive in raising electricity charges than its predecessor. As things stand now, it will be difficult to erase KEPCO's deficit without taking radical measures. Only when a better pricing system is in place can the state utility make both ends meet.
