No more quick fix for the utility rates

Korea Electric Power Corp. (Kepco), sinking under its colossal debt and losses, is replacing its CEO, selling all office buildings and properties that can be monetized, and freezing salaries in hopes of raising 25.7 trillion won ($19 billion). The state utility company’s operating losses snowballed to near 39 trillion won — 6.18 trillion in the first quarter on top of 32.7 trillion for full 2022. Another money-losing utility Korea Gas Corp. (Kogas) also announced a 15.4-trillion-won restructuring scheme after reporting uncollected payment (or otherwise losses) of 11.6 trillion won for the first quarter.

But the self-rescue measures from the two state utility companies were met with a cold response. Some of Kepco’s measures squeezed out under political pressure are suicidal. Since the employees would need a space to work, selling the headquarters building only will demand extra expenditure for rent. The company hopes to save 1.3 trillion won by 2026 by putting off construction for new power infrastructure. But upgrading and expanding power grids must take place in line with an increase in power plants under a long-term power supply roadmap. A delay in the construction of power grids could interrupt the opening of nuclear reactors under construction.

The astronomical losses of Kepco and Kogas stem from the political populism of freezing utility fees despite the energy price spike due to the Russia-Ukraine war. The government delayed the raise in gas and power bills due to elections in the past. The utility companies also suffered from the policy to wean off nuclear power under the previous administration for purely ideological reasons. But the Yoon Suk Yeol administration and the People Power Party cannot keep blaming the past liberal government for the woes of the state utility companies.

Since the cause is clear, the solution is also laid out. To ease the losses, power and gas rates should be rationalized according to market principles. Kepco has demanded a rate hike of 52 won per kilowatt hour this year to water down its losses. The mercury is already nearing 25 degrees Celsius (77 degrees Fahrenheit) during the day. The summer peak season is around the corner.

After the winter peak season, the parliamentary election will arrive. The utility companies and the economy can fall into deeper and lasting troubles if policymakers and politicians put off immediate pain in fear of losing votes in the election on April 10 next year. The spike in utility bills landed as a bombshell last winter due to the deferred raise. The government and politicians must stay vigilant. Rationalizing the utility rates cannot afford another deferment.