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[Editorial] Passing the burden to taxpayers

Kepco’s electricity rate freeze signals distorted billing system, more troubles ahead

State-run power firm Korea Electric Power Corp. asked for an increase in the country’s electricity rate, citing soaring global energy prices. The Moon Jae-in administration rejected it in the name of reining in runaway consumer prices.

A hike in electric bills at this point will certainly put more pressure on prices amid rising inflation, but the administration’s decision is not only short-sighted but also irresponsible.

On Monday, Kepco announced the country’s electricity rates for the first quarter of 2022 would be frozen, setting the adjusted unit fuel cost at zero won per kilowatt-hour. But the rate freeze was not what Kepco wanted, as it originally requested a 3 won increase following sharp rises in energy prices worldwide.

In fact, if the actual increase in global energy prices had been reflected, Kepco would have had to ask for a 29.1 won increase in the adjusted unit fuel cost per kilowatt-hour. But it could not go that far since the quarterly increase is capped at 3 won.

But the administration turned down Kepco’s request and opted for a freeze, citing inflation concerns. The country’s consumer prices rose 3.7 percent in November from a year ago, the fastest on-year increase in a decade. The lofty figure came after a 3.2 percent increase in October.

With the majority of essential items turning pricier, the public would be more dissatisfied if the electric bills would go up, as well. With the presidential election slated for March next year, the administration and the ruling Democratic Party of Korea appear fearful about “unpopular” policy decisions such as an electricity rate hike.

But the latest freeze renders the flexible billing system virtually meaningless. Late last year, the country introduced a flexible electricity rate system, whose rates are adjusted every three months, depending on global prices of liquefied natural gas, coal and crude oil. Previously, it ran a fixed-rate billing system.

In the first quarter when the flexible billing system was first applied, the electricity rates were slashed. But in the following two quarters, the administration froze the rates in the name of stabilizing consumer prices. In the fourth quarter, it raised the rate just slightly.

Now, the first quarter of next year will see the rate frozen again, raising questions about why the country should stick to the not-so-flexible new rate system.

Meanwhile, European countries hiked the electricity rates by 30 percent to 40 percent in step with soaring energy costs this year. Japan also raised the rates by 15 percent.

The continued rate freeze is dealing a fatal blow to the balance sheet of Kepco, whose operating loss is forecast to reach 4.4 trillion won ($3.7 billion) this year and 5 trillion won next year. State-run Kepco’s financial troubles will translate into heavier burdens on taxpayers down the road.

Even though it might be painful in the short term, the rate should have been upwardly adjusted to minimize extra burdens for taxpayers.

Policymakers should reconsider the effectiveness of the flexible billing system of Kepco at a time when climate change increasingly brings about drastic changes in energy prices, which makes it hard to adjust the electricity rates in a timely manner.

To weather the global energy turbulence and prevent Kepco from ending up with mounting losses, Korea needs to use nuclear energy. But the country, a former front-runner in nuclear energy, is stuck with President Moon Jae-in’s nuclear phaseout policy that generates a slew of intractable problems.

Some critics claim that the Moon administration is freezing the electricity rates in an attempt to avoid criticism that it is passing the costs of the problematic nuclear phaseout to taxpayers. Kepco’s snowballing losses suggest such criticism is not so groundless.

By Korea Herald (
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