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[Editorial] Shirking responsibility

Electricity rates frozen without reflecting fuel price hikes; cost-link system snubbed

The government and Korea Electric Power Corp. on Monday decided to freeze the electricity rate in the third quarter as they did in the second quarter.

If they had allowed for the rising costs of oil and other fuels, they should have raised the rates, but they decided not to.

This is quite a contrast to the government’s recent decision to reduce the rate deduction for households that use a small amount of electricity (200kWh or less a month) and the discount rate for electric vehicle charging fees.

The electricity rate freeze is abnormal in light of recent hikes in international oil price.

Starting this year, the government implemented a system connecting electricity rates to the cost of fuel, such as petroleum and liquefied natural gas, in a move to reflect fluctuations of fuel expenses in electricity bills regularly.

If the system is applied, an increase in electricity rates for the third quarter was inevitable. Fuel prices for the span of March to May soared from the previous period, from December last year to February, according to Kepco. The government lowered electricity rates in the first quarter when international fuel prices fell in the preceding months.

The Ministry of Trade, Industry and Energy said that it sought to secure people’s livelihoods by considering a prolonged coronavirus pandemic and high inflation rate, though international fuel prices rose sharply. It has a point. In summer when a large amount of electricity is consumed, and in these tough times of the pandemic, average homes, self-employed people and small businesses cannot but find their electricity bills quite burdensome. The government might have considered the risk of electricity charges stimulating inflation.

However, once the government has formulated a principle, it is right to observe it faithfully. If it continues to flout the principle on this or that pretext, one cannot but ask why it adopted the cost-price interlocking system in the first place. The system is intended to induce rational energy consumption and reduce the financial burden on Kepco.

Moreover, numerous measures conscious of popular opinion poured out from the current administration whenever it is an election season. There is much criticism that the electricity rates might have been frozen in that vein. The second-quarter rates should have reflected higher fuel costs but the government did not raise them, mentioning the burden on working-class people. The government is suspected of having frozen the rates for the second quarter apparently to win votes in the April 7 by-elections.

The ministry said that if fuel costs remain high in the second half of the year, it will consider reflecting cost changes in the electricity rates. But it looks unlikely to keep its word. When presidential campaigns start in earnest in the fourth quarter. it is expected to find it even more difficult to raise electricity charges.

In that case, the delayed economic burden due to the suppression of electricity rates will have to be shouldered by the state-owned energy enterprise after all.

As a matter of fact, Kepco’s already bad financial status is getting worse. This is because the government has been expanding investment in new renewable energy under its policy to phase out nuclear energy.

Electricity generation using costly LNG has increased 16.3 percent since the launch of the current government. This caused Kepco to record net losses of 1.17 trillion won and 2.26 trillion won in 2018 and 2019, respectively.

The total debt owed by Kepco is expected to rise from 108 trillion won in the early days of the Moon Jae-in presidency to more than 159 trillion won in 2024.

Its net losses must ultimately be made up with tax revenues. People will eventually receive bills that reflect Kepco’s increased losses. The system linking electricity rates to fuel costs was introduced to prevent this situation, but the government effectively made it useless. This behavior is nothing but an evasion of responsibility, shifting the burden onto future generations. It is desirable to observe a principle once it is made.

By Korea Herald (