Energy firms likely to stay insolvent until 2024 general elections

After a month and a half of delaying the decision, the government and the ruling People Power Party (PPP) have finally raised electricity and gas prices. Starting Monday, electricity bills will increase by 3,000 won and gas bills by 4,400 won based on the average monthly usage of a family of four. While the burden on households, the self-employed, small business owners, and businesses will increase significantly, it is not enough to make up for the deficits accumulated by Korea Electric Power Corporation (KEPCO) and Korea Gas Corporation (KOGAS), which have been selling energy at lower prices.

The government said that electricity prices were raised by another 8 won, following an increase of 13.1 won per kilowatt-hour (kWh) in January. Gas prices, which had been frozen amid fears of a winter "heating bill bomb," rose for the first time this year by 1.04 won per megajoule (MJ). A family of four using 332 kilowatt-hours of electricity and 3,861 megajoules (MJ) of city gas per month will see their electricity bill rise from about 191.5 won to 200.6 won per kWh, and their gas bill per MJ rise from 21.9 won to 23.1 won.

The electricity and gas prices announced this time are for the second quarter, which were originally set in late March and were supposed to take effect in April. However, the ruling party has been stalling on the bill to raise the prices, and Deputy Economy Minister Chu Kyung-ho has deferred responsibility, saying, "The party will make the final decision." While the ostensible reason for the hike was KEPCO's lack of self-sufficiency, it's no secret that the ruling party wanted to avoid taking on as much political pressure as possible ahead of next year's general elections.

The problem is that the hike will do little to reduce the energy company's deficit. KEPCO, which has accumulated 45 trillion won in deficits from 2021 to date, needs an additional 51.6 won per kWh to normalize, but this year's increase is less than half of that at 21.1 won. KOGAS also needs a 10.4 won increase to eliminate its 11.6 trillion won deficit, but the actual increase was only one-10th of that.

The side effects of insolvent energy companies are far-reaching. KEPCO, which has a high credit rating because it is a state-owned company, has raked off market funds by issuing deficit bonds, causing other companies to struggle for funds. As KEPCO is slowing down its investment in transmission and distribution networks to cut costs, concerns are rising that Samsung Electronics will not be able to supply power in time for the semiconductor cluster it plans to build by 2030.

In the end, it is difficult to avoid additional hikes within the year, but the ruling party is already saying, "This is the last hike before the general elections.” For more than a year now, the ruling party has been blaming the failure of energy firms on the previous administration's policies. However, the current ruling party will inevitably be responsible for the aftermath of the politicization of utilities and the disruption of the energy industry ecosystem.