[Editorial] Raising utility bills is a question of security

As sharp rise in electricity bills will deepen the pains for economic participants, the government must save energy in the public sector and reduce the cost burden for the weak class.

Electricity bills next year will be raised by the biggest pace in four decades to help contain the red ink our state utility companies have suffered from surges in international fuel prices. “There are too many reasons to lift utility bills,” said Lee Chang-yang, minister for trade, industry and energy. The ministry on Friday announced that power rates for consumer and industrial use will go up by 13.1 won ($0.01) per kilowatt hour (kWH) in the January-March period, sharply higher than a 2.5-won raise per kWH in the fourth quarter.

In its outline submitted to the National Assembly recently to normalize the deficit-ridden Korea Electric Power Corporatoin (Kepco), the energy ministry raised the need to raise the rate by 51.6 won per kWH in 2023, nearly tripled from this year’s hike.

The spike in power charges is inevitable despite consequential hardships on households and companies battling with across-the-board high inflation and interest rates. But when Kepco’s risky financial condition is left unattended, the nation’s economic foundation could be shaken. Kepco incurred a loss of 27.7 trillion won from 2021 through the third quarter last year. The state utility company has been issuing corporate bonds en masse to sustain its operation. The bonds it issued until Dec. 20 last year reached a whopping 30.4 trillion won. Its outstanding issues total 67.3 trillion won. Kepco bonds have been sucking up the already-feeble demand in the corporate bond market, making debt financing more difficult for other companies and helping push up market yields.

Electricity is a pillar to energy security. The energy crisis has hardened the world this year due to the Russian war on Ukraine. Europeans endure shivering winter after gas pipelines were cut off from Russia. The U.S. is also battling with surges in oil and natural gas prices. Power bills have shot up as a result.

Kepco woes did not just result from the global energy crisis, but also from policy mistakes of the previous administration such as nuclear phase-out and an increase in natural gas-powered electricity generation. Yet power bills stayed frozen so as not to lose votes in elections. Energy policy led by ideology and populism will result in big rises in power bills next year.

Koreans have been used to cheap power. Their home utility bills are the cheapest among 25 member countries of the OECD, not to mention their industrial electricity bills which are also below the OECD average. As a result, Korea’s power consumption is 2.5 times larger than Japan’s and Germany’s and 3.5 times bigger than in the U.K. As sharp rise in electricity bills will deepen the pains for economic participants, the government must save energy in the public sector and reduce the cost burden for the weak class.