Concerns grow over power rate hike delay as KEPCO faces 2nd-year of losses

Park Dae-chul, the People Power Party’s policymaker, center, speaks during a trilateral meeting among the government, the ruling party and the private sector concerning power and gas rate on April 20. [Photo by Han Joo-hyung]

The proposed power and gas rate hikes have now been delayed more than 20 days since the announcement of the initial schedule, as the government and the ruling party are struggling to decide on the timing and scale of the increase.

The decision on the rate hike failed to come on Thursday after a trilateral meeting among the government, the ruling party and the private sector concerning power and gas rate.

“The economic and the energy sectors have reached a consensus that a rate hike is inevitable,” said Park Dae-chul, the People Power Party’s policymaker, after the meeting. “Breakthrough measures were what all parties sought as both businesses and the energy generators face challenges. We must consider how to share the burden among the people.”

When asked about speculations that the decision could come after the president’s visit to the U.S., Park sternly denied any connection between the two.

During the meeting, representatives from industrial businesses reportedly requested a remedy to ease their burden, while accepting the inevitable rate hike. The Korea Chamber of Commerce and Industry asked for a re-consideration of the proposed Saturday late night rating plan and the Korea Semiconductor Industry Association called for stability of the power supply for chip clusters.

Delays in the announcement are making industry insiders and experts fretful that the government may miss the right timing to raise rates, similar to what happened during the previous administration. Industry sources say the second quarter is the perfect time to apply higher rates as power consumption is low and could work as a buffer for any shock from a rate increase.

A number of air conditioning condenser units are placed outside of a building. [Photo by Lee Seung-hwan]

According to the monthly electricity statistics from Korea Electric Power Corp., electricity sales was the highest in the third quarter at 144,012 gigawatt hours, followed by the first quarter at 143,180GWh, the fourth quarter 131,762GWh and the second quarter at 128,978GWh. Given the general election in April next year, it will be more difficult to raise rates later this year.

KEPCO is expecting another loss this year. According to local financial data tracker FnGuide, the consensus estimates for KEPCO‘s operating loss to reach 9.8 trillion won($7.34 billion), after posting a record 32 trillion won loss in 2022. International energy prices, often used as a gauge for KEPCO’s performance, have risen to $80 per barrel for Dubai crude, breaking the stable pricing trend early at the beginning of the year. KEPCO’s operating losses may grow to 15 trillion won this year, some predict.

Even if the rates are increased this year, the limit on KEPCO’s corporate bond issuance may have to be lifted again if the hike isn’t enough. The ceiling on the state company’s bond issuance is currently at 125 trillion won, after it was lifted by up to six times through relevant law amendments at the end of last year. The current cumulative balance stands at 78 trillion won, but with this year’s losses, the ceiling for bond issuance in 2024 is likely to be reduced by more than a third.

“The fundamental cause of KEPCO’s losses is low electricity prices with a recovery rate to cost at only 70 percent. Higher or normal power rates could ensure a stable supply,” said Lee Jong-su, a professor at Seoul National University.

“KEPCO has failed to reflect inflation in its energy prices in a timely manner. Being cautious on rate increases does not provide a solution, but only extends the problem,” said Incheon National University economics professor Sonn Yang-hoon.

Businesses are sitting and waiting for the rate decision to come, as nothing else can be done while they cannot resolve uncertainties as they plan operations for the second half this year. “As early as possible, to remove uncertainties, is what we want, since the rate hike seems to be inevitable,” said a power industry insider.