KEPCO chief sees another power rate increase as necessary

KEPCO CEO Kim Dong-cheol [Photo by Lee Jin-han]

Amid ongoing financial challenges, South Korea’s state power company has signaled an additional electricity rate increase, claiming that an increase of at least 25.9 won ($0.02) per kilowatt-hour (kWh) is necessary. The proposal translates into an increase of about 8,000 won per month for an average four-person household based on its average electricity consumption of 304 kWh.

In his first press conference since his appointment as chief executive officer of the Korea Electric Power Corporation (KEPCO) in Sejong City on Wednesday, Kim Dong-cheol implied the necessity for a power rate hike. Attributing the company’s accumulated losses to the increase in generation costs which, according to Kim, were not reflected in the rates, the CEO expressed concerns about the potential worsening of the company’s financial distress. “Without another rate increase, KEPCO’s finances will continue to deteriorate, and the losses could grow to the point where the company cannot manage them with a corporate bond issuance or loans, potentially leading to the collapse of the entire power ecosystem,” Kim warned, adding that “a firm decision is needed.”

According to a power rate hike proposal previously submitted to the National Assembly by the Ministry of Trade, Industry, and Energy, the energy ministry saw an increase of 51.6 won per kWh in 2023 as necessary to resolve KEPCO’s accumulated losses. However, the increase for the first half of this year was a mere 21.1 won per kWh, with 19.4 won per kWh raised for the baseline fuel cost.

KEPCO’s stance is that an additional increase of 25.9 won per kWh from the initial proposal is still necessary. “While we understand that the government has various factors to take into account when making a decision but based on its initial plan for the flexible electricity billing system introduced in 2021, the baseline fuel cost should have been raised by 45.3 won per kWh this year.”

The CEO also addressed concerns about potential inflationary pressure that could follow power rate hikes. “A passive approach to normalizing electricity rates may lead to energy overconsumption, eventually resulting in an increase in energy imports and affecting the nation’s balance of payments,” he said.

KEPCO itself is also considering additional internal measures as a prerequisite for a rate hike, as the company has faced criticism that it needs intensive internal restructuring. KEPCO was put under emergency management in August 2023 and announced a 25.7 trillion-won financial restructuring plan, including measures like asset sales and cost reductions. “Specific action plans will be formed and pursued in certain underperforming areas, such as asset sales, with a target to achieve our goals within this year,” Kim said, implying that KEPCO’s latest internal measures are expected to be the most intensive in history. The new measures will be announced within the next 2 to 3 weeks, he added.

Kim also agreed with the criticism that the current framework to decide power rates is vulnerable to external factors, particularly political ones. “The benchmark rate is set by the central bank, and their decision to increase interest rates does not accompany blame targeting the government. I believe that having an independent body determine electricity rates based on fuel costs would reduce the burden on the government and be more acceptable to the public,” he said.