Minimizing shocks from utility fee hikes

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Minimizing shocks from utility fee hikes

The government has put off the decision to set the fourth-quarter electricity rates. The announcement was initially due on Wednesday, but it was deferred due to a lack of consensus within the government. The Ministry of Economy and Finance in charge of managing utility prices and the Ministry of Trade, Industry and Energy have not been able to iron out their differences. The indecision underscores the dilemma over electricity rates. Electricity bills must better reflect the spike in imported energy prices, but at the same time the government must consider the public lives hardened by rapid rises in consumer prices.

The global community faces an energy crisis in the cold season. Europe has turned panicky after Russia has been fidgeting with gas pipelines as the Ukraine war protracts. Australia — the biggest supplier of liquefied natural gas to Korea — is mulling export curbs. The pressure on electricity bills inevitably builds up due to Korea’s high reliance on fossil fuel and thermal power plants for power generation. Imports of crude, gas and coal for energy sourcing reached $140 billion so far this year, up $60 billion compared to the previous year. They were the primary culprit behind Korea’s trade deficit of $25 billion for the same period.

The nuclear phase-out pushed by the previous administration has aggravated energy woes. Under the government, reactors were shuttered ahead of their retirement age, and the construction of new reactors was suspended to lower the operation rate of reactors. Electricity bills were capped to avoid criticism for translating the cost of the nuclear phase-out onto consumers. The new Yoon Suk-yeol administration quickly reversed the policy and included nuclear energy in the green taxonomy. But the country inevitably has to pay the price for the lost years.

The Korea Electric Power Corporation (Kepco) sinks deeper in debt and deficit. After reporting a record operating loss of 5 trillion won ($3.6 billion) last year, the state utility company already suffered a 14-trillion-won deficit in the first half alone. An estimate showed each four-member household would have to pay 80,000 won more each month in electricity bills to lessen the losses for Kepco. Such a jump would hardly be acceptable. Kepco would have to save itself through stringent restructuring and gradual rate increases.

Given current situation, electricity rate increases cannot be avoided. The government must clearly explain the necessity for rate hikes and offer measures to cushion the shock. It must not neglect the socially-weak. In the longer run, Korea’s reliance on imported fossil fuel must be reduced by maximizing employment of nuclear energy and renewables.
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