Independence to fix energy prices is the key

The government has decided to raise electricity prices for the second quarter despite inflation and economic woes, due to snowballing losses of public utility suppliers. From Tuesday, power bills went up 8 won per kilowatt-hour and city gas 1.04 won per megajoule. Monthly bills will add 3,020 won ($2.24) for electricity and 4,430 won for gas for a four-member household.

The burden won’t be small for the working class. At the same time, the increase will offer little relief for Korea Electric Power Corp. (Kepco) and Korea Gas Corp. (Kogas) which are running multibillion-dollar losses. Kepco has incurred 45 trillion won in cumulative operating losses from 2021 to the first quarter. Losses ballooned under the current rate structure that builds up losses for every power supply as electricity purchase cost is higher than selling price. Kogas’s deferred payment or losses piled up to 11.6 trillion won as of March. The two public utility companies would have gone bankrupt if not for government aid.

The abnormal utility rate system has been costing the economy — highly dependent on energy imports — dearly. Because of habitual excess energy use due to cheap prices and the surge in energy import costs, trade deficit has been ballooning. Kepco has been issuing corporate bonds to run operations, which has pushed up the market yields and aggravated interest burden for companies and households. As Kepco has put investment in power grids on hold, over 6,500 contractors and subcontractors are faced with a murky business outlook.

Energy experts have been arguing for realistic rationalization in power rates. They called for a reasonable increase in the second quarter, as hikes could be difficult in the third and fourth quarters when cooling and heating demand is high and the next parliamentary election nears. Electricity rates went up 13.1 won in the first quarter and 8 won in the second — a total of 21.1 won in the first half, which is just half of the hike of 52 won Kepco demanded. The small increase would mean that Kepco’s business will worsen this year.

The deteriorating situation owes much to over-meddling by politicians. The People Power Party in March put on hold the planned hike for the second quarter, citing the need for Kepco’s self-restructuring. It also forced only a slight increase so as not to “burden the public.” But politicians are merely chasing votes and not easing the burden on taxpayers.

The losses of Kepco and Kogas will have to be covered by tax funds. The conservative government is merely repeating the populist practice of the past liberal government. The fiasco underscores the need to establish an independent rate-setting commission to determine power rates without political influence as done in advanced countries.