Kepco board wants 10.7% electricity rate increase

The Korea Electric Power Corporation (Kepco) board yesterday agreed to propose a 10.7 percent electricity rate increase and a 6.1 percent additional fuel surcharge on top of the base rate.

Kepco estimates the proposal would generate an additional 1.5 trillion won ($1.3 billion) this year, according to the Ministry of Knowledge Economy.

The government, however, is not welcoming the new proposal.

“The decision from the Kepco board is opposite of what the government has been trying to do, including stabilizing consumer prices and individual family finances and keeping the industry competitive,” said Lee Gwan-seop, director general of the ministry’s office of energy and resources.

“I personally think that the rate is quite distant from what the government has discussed.”

The Knowledge Economy Ministry is also skeptical about the additional fuel surcharge system because Kepco is asking the ministry to reset the benchmark for the system. Because the fuel price is a big part of the cost of electricity production, Lee said, the government introduced the system last July, but it has not been used pending agreement on final details.

While the benchmark rate should be based on the average fuel price of the three previous months, Kepco wants the government to set this year’s benchmark based on the last year’s rate, when fuel was cheaper.

“The lower benchmark will make it possible for Kepco to charge more for the fuel surcharge and that revenue is set to match the deficit,” said Lee. “It is problematic to change the ministry’s announcement just for the Kepco’s net profit for the year.”

The Ministry of Knowledge Economy is set to review the proposal and will make an official announcement when Kepco officially submits the agenda today.

The agreed rate is lower than Kepco’s initial 13.1 percent proposal in April, which was rejected by the ministry as too steep. The government has suggested that a 4 to 5 percent increase would be reasonable.

Kepco’s board seems to want to stick with a larger increase, especially after its shareholders sued its former chief, Kim Ssang-su, last year for dereliction of duty for not pushing hard enough for the increase. They demanded Kim compensate them to the tune of 2.8 trillion won.

By Lee Sun-min [summerlee@joongang.co.kr]