Starting next month, the average monthly power bill for a family of four is expected to increase by 1,535 won. The increase is inevitable as KEPCO's deficit has grown massively to an unsustainable point due to its distorted power billing system. City gas prices will also go up 7 percent. Public utility prices have been kept down by the government and political parties, but the war in Ukraine and impacts from the policy to shift away from nuclear energy has driven power prices to a point where price increase has become inevitable.
The increase of KEPCO's third quarter power prices, as approved by the Ministry of Commerce, Trade and Energy, is five won per kWH, which is actually one seventh of fuel price increase footed by KEPCO. The increase will push KEPCO's income growth by 1.3 trillion won by the end of the year, but falls severely short of addressing KEPCO's astronomical deficit, which is expected to reach 7.8 trillion won in the first quarter and 30 trillion won annually. Additional increase or government financial support seems to be inevitable.
KEPCO's fall from an excellent company to a struggling one in just a few years comes from the government's negligence towards KEPCO's abnormal price structure of selling power at half the price it costs to generate. While this has kept Korea's domestic power prices down, at 61 percent of average OECD country prices, it has driven KEPCO's deficits. Electricity usage per person last year, when international oil prices went up, rose at a record high, placing Korea at third largest in the world. KEPCO's abnormal price structure has resulted in excessive energy consumption.
The government has introduced an fixed energy price system to address the situation, but has rendered it useless by not using it at all, under political pressure. The management at KEPCO is also accountable, by remaining complacent under the belief that the government would raise prices or foot the bill with tax. The government's failed energy policy of shifting away from nuclear power only resulted in relying on expensive LNG based power, aggravating the situation.
Turning a blind eye to the situation eventually resulted in the public paying the costs, amid high inflation rate of 6 percent, an alarming rate unseen since the Asian financial crisis, of the politics of energy. To prevent the same situation from happening again, energy prices should be determined by an politically independent body. The government should come up with support measures, such as energy vouchers, to help lower income families. Returning management's performance pay at KEPCO is not enough, KEPCO should be held accountable for negligent business management and undergo drastic restructuring by cutting its staff and organization.