Are you conscious of the election… Government to hold KEPCO’s electricity rate hike plan

Enter 2021.03.22 11:10 | Revision 2021.03.22 11:15

Korea Electric Power (015760)After seven years, the company pushed for an increase in electricity rates, but it failed. KEPCO suggested an increase in electricity rates for the second quarter, reflecting the rise in fuel costs, etc. to the government, but the government decided to postpone the rate hike in order to stabilize the price of the common people.

On the 22nd, KEPCO announced a plan to adjust electricity rates for the second quarter of this year (April to June) and announced that it will freeze the adjustment unit price for fuel costs. Accordingly, the fuel cost adjustment unit for the second quarter was set at -3.0 won per kilowatt-hour (kW) following the first quarter.

The government has frozen electricity bills for seven years since November 2013 for reasons such as price stability. Initially, the industry predicted that KEPCO would raise electricity bills for the second quarter by 2-3 won per 1 ㎾h compared to the first quarter. This is because oil prices and liquefied natural gas (LNG) prices have recently skyrocketed, and it was inevitable to raise electricity rates according to the fuel cost indexing system.

The government and KEPCO introduced a cost-linked rate system (fuel cost linkage system) last year to improve the situation in which the difference in performance increases depending on oil prices because electricity rates are virtually fixed. It is a system in which changes in fuel costs such as oil prices are reflected in the electricity rate every three months by adding a’fuel cost adjustment fee’ item to the electricity rate. In the first quarter of this year, electricity rates were lowered by 3 won per 1 ㎾h, reflecting the trend of falling fuel costs.

However, as fuel costs surged in the first quarter, KEPCO submitted the details of fuel cost adjustment rates and related basic data to the government on the 16th, stating that an increase in electricity rates was necessary. In fact, last week, Dubai oil averaged $66.7 per barrel. Considering that Dubai oil was an average of 20.33 won per barrel in April of last year, the price has tripled. The price of liquefied natural gas (LNG) also surged due to the cold wave that hit the world this winter. Earlier this month, the price of LNG in the Japanese trading market reached a record high of $32.5 per million Btu (the amount of calories required to increase 1 degree Fahrenheit in a pound of water), a record high since 2009. Considering the fact that it was about 5 dollars per 1 million Btu in January of last year, this is a 6-fold increase.

It is interpreted that the government exercised the right to reserve the fuel cost index in consideration of the burden of inflation and other factors. The reservation right is a system in which KEPCO asks the government to reflect the change in fuel cost adjustment rates, and decides whether to reflect it as it is, whether to partially reflect it, or not reflect it at all, in consultation with the price authorities. The government seems to have determined that there is a need to stably manage utility bills as consumer prices have risen due to the effects of Corona 19.

On the 19th, Kim Yong-beom, the first vice minister of the Ministry of Strategy and Finance, said, “We will manage public charges stably in the second quarter to minimize the impact on consumer prices.”

A KEPCO official said, “The fuel cost adjustment unit price adjustment factor occurred due to the impact of rising international oil prices.” “I received a notice of reservation from the government in order to promote the stability of my life.”

KEPCO’s share price is also declining as the electricity rate hike has been eliminated. KEPCO’s stock price is trading at 23,250 won, down 3.73% (900 won) from the previous trading day as of 11 am on the day.