Unavoidable hikes in utility bills

The electricity rate dilemma is an expensive lesson on how the bill on populist government policy eventually is charged on the people.

Electricity rates are going up. The Korea Electric Power Corp. (Kepco) announced that rates will be raised by 5 won per kilowatt-hour in the July-September period. A family of four using about 350 kilowatts per hour would be charged about 1,750 won ($1.36) more in their monthly electricity bill. City gas rates also will increase by 2,220 won a month in Seoul from July. Public utility fees are also likely to be bumped up.

Kepco estimates a hike of 33.6 won per kilowatt-hour is necessary to reflect the surge in fuel costs for power generation. Warnings have already sounded that gas rates will go higher in October. Unless international oil prices come down, utility fees will certainly be headed north.

Given Korea’s heavy reliance on imports of petroleum and gas, raising electricity and gas rates could be inevitable. Consumers, businesses and companies must endure. But the move comes at a bad time, as inflation is expected to hover above 6 percent during the summer. Because electricity is the base for production and services, higher electricity rates would have to be reflected in production costs.

The need for electricity fee hikes has been an issue since the Moon Jae-in administration relentlessly pushed a reactor phase-out policy while drastically increasing government investment in renewable energy. As a result, Kepco’s financial statement rapidly deteriorated. Last year, the corporation’s purchase of energy from renewable sources increased 1.6 times against 2017. The share of renewables in Kepco’s energy purchase also rose 2.5 percentage points. The jump in natural gas and coal import prices also played a part in worsening Kepco’s deficit. If fuel costs increase, the wholesale prices of electricity Kepco buys from power generators will also go up.

Electricity rates have been more or less frozen since 2013. The raise of base fuel prices in April was the only change. Kepco was bound to sink deeper in the red. It incurred a record 7.8 trillion won in operating loss in the first quarter. At the current rate, its annual operating loss could exceed 20 trillion won.

Consumer prices are stifling. Gasoline prices cost a minimum 2,100 won per liter. A popular cheap Chinese noodle dish even costs 7,000 won. Deputy Prime Minister for Economic Affairs Choo Kyung-ho, who also serves as finance minister, forewarned that consumer price gains will exceed 6 percent in June to August. Inflation of over 6 percent will be the first since 1998 in the wake of Asian financial crisis.

The electricity rate dilemma is an expensive lesson on how the bill on populist government policy eventually is charged on the people. The government must endeavor to contain prices even if a raise in utility fees is unavoidable.