Let an independent body fix energy prices

An electricity committee with independence and neutrality under the law needs to be established to decide the rates.

SOHN HAE-YONGThe author is the business news editor of the JoongAng Ilbo. Korea’s electricity rates are the lowest among 38 countries of the Organization for Economic Cooperation and Development (OECD). According to Global Petroleum Price, as of September last year, household electricity prices in Korea were $0.094 per kilowatt-hour, the second cheapest among the OECD members.

It is only one-sixth of the highest rates in Denmark and Italy ($0.579), and one-third of Japan, at 19th with $0.259, which has a similar economic structure compared to Korea.

Gas bills are also cheap. According to a research institute at the Korea Gas Corporation (Kogas), Korea’s residential city gas bill is 19.7 won for 1 megajoule (as of February), when the rate in Germany is 91.8 won ($0.07), 68.2 won for Britain, and 33.1 won for the United States (as of August and September last year). Gas price is about a quarter when the same amount is used.

Other countries reflect the increase in production cost in their rates, but the gap has grown even more, as Korea makes only a “slight” increase. If these abnormal prices continue, the Korea Electric Power Corp. (Kepco) is expected to suffer a deficit of up to 20 trillion won this year, while the Kogas will see its outstanding amount rise up to 13 trillion won at the end of this year.

Nevertheless, the normalization of prices is a challenge due to political obstacles. If the deficits of the two state-run utility companies exceed the limit, they will eventually have to be filled with tax money. As the prices are suppressed, consumers’ use of electricity and gas increases and energy imports increase again, leading to a bigger trade deficit. I am also concerned about the impact on the ecosystem of the power generation industry.

The side effects are not limited to the energy market. Kepco has already issued more than 8 trillion won in corporate bonds this year to compensate for the deficit. As investment is flocking to ultra-high-quality Kepco bonds guaranteed by the government, companies with low credits are on the alert to raise funds in the financial market. Trade friction is another concern because Korea’s competitors see Korea’s low electricity bills as a kind of subsidy.

The current situation is largely due to the Moon Jae-in administration’s control of the utility bills despite the international energy price surge. If you go in deeper, there is the rate-setting system at the root, which is bound to be swayed by politicians.

Under the current law, electricity bills go through deliberation and resolution by the Electricity Regulatory Commission under the Ministry of Industry, but the final decision is up to the Ministry of Industry. The Ministry of Economy and Finance also wields influence in the consultation process. So, it is difficult to be free from political judgment.

Like major countries such as the U.S., Britain and Germany, an electricity committee with independence and neutrality under the law needs to be established to decide the rates. The time has come to stop the political discord over electricity and gas bills and cut excessive policy costs.