Utility rates hike

Cost-saving steps needed to ease consumer burden

People are concerned about the mounting financial burden as the government has decided to raise electricity and gas prices. In fact, they have been bearing the brunt of the unprecedented global economic crisis that led to wage cuts and job losses. Their anxiety grows deeper as their living conditions have little sign of improving although the economy shows a fast recovery.

Electricity rates will go up 3.5 percent on average starting this month ― 2 percent for household use and 5.9 percent for industrial use. The figures may seem marginal. But the higher charges are expected to touch off a chain reaction of putting more pressure on production costs and making manufactured consumer goods more expensive. City gas charges will also rise 4.9 percent from next month, raising further concerns among consumers.

To some extent, the increases are inevitable as the prices of crude oil and natural gas have kept growing on world markets. The Lee Myung-bak administration refrained from ramping up the rates on par with rising international oil and gas prices before the June 2 local elections. Officials said the government can no longer check the increase of the utility charges. They noted that the state-run Korea Electric Power Corp. (KEPCO) will have to suffer a snowballing deficit without raising the rates.

KEPCO has recorded an accumulated deficit of 4 trillion won since 2008. Despite such a huge shortfall, the corporation has provided electricity at a price that covers only 91.5 percent of generation costs. Policymakers stressed that the irrational price structure should be rectified to help KEPCO regain its financial balance by jacking up the charges. No one wants to see the utility provider go bankrupt due to the deficit.

However, consumers cannot easily accept the increase because they believe that KEPCO has not exhausted its efforts to cut down on the power generation costs. The company is blamed for neglecting the downsizing of its bloated structure. In fact, it has made little progress in managerial restructuring just as other state-run enterprises had done. But, KEPCO’s management has raised wages by an average of 6 percent over the past several years.

Against this backdrop, the government cannot avoid criticism that it is just trying to force consumers to shoulder the burden arising from KEPCO’s poor managerial performance. An electricity rate raise is the easiest way of making up for the firm’s losses. But, it could bring about the problem of a ``moral hazard,” which might allow KEPCO to shirk its responsibility for the deficit.

To give credence to the increase of electricity charges, the government should first impose drastic restructuring on KEPCO. The corporation is also required to make sincere efforts to help consumers ease their burden by promoting managerial innovation and implementing cost-saving measures. It is equally important for policymakers to minimize the effect of the utility rate hike on consumer prices that face mounting pressure in the months to come amid rapid economic expansion.