Power rate cut

Governmental plan wins consumers' favor at the expense of state utility

The Moon Jaein administration's plan to revise progressive electricity rates has problems, as it puts the financial burden on the Korea Electric Power Corp. (KEPCO).

The government put forth three proposals to loosen or abolish progressive power rates for residential consumers, all of which have the effect of reducing electricity bills. The first proposal calls for expanding the progressive stage to give the benefit to 16.29 million households. The second proposal will reduce the current three-stage progressive scheme to two, defusing the "power bill bomb." The third proposal aims at doing away with the progressive billing scheme itself, an unrealistic idea as it increases the number of households with heftier power bills. In all of these cases, KEPCO will have to shoulder between 191.1 billion won ($162.2 million) and 298.5 billion won.

Last summer, KEPCO bore the additional expense of 360 billion won because of similar rate cuts for two months. In the first quarter of this year, too, the state utility logged an operational loss of 630 billion won on a consolidated basis. This was due to the government's nuclear phase-out policy and a steep rise in fuel costs, including liquefied natural gas. KEPCO is a state enterprise but is listed on the Korea Exchange with not a small portion of equities held by foreign investors and minority shareholders. When KEPCO announced its massive loss for the first three months, several minority stockholders criticized the government's policies and called for its operations to return to a profit.

Policymakers should also consider the revised progressive rate system as any resultant cuts will lead to increased electricity consumption. Korea's power rate for households is the lowest among OECD member nations and its per capita electricity consumption is larger than in most advanced countries. That means the government has to raise, not lower, power rates. Cheaper electricity and increased use will surely aggravate KEPCO's bottom line, and the people will find themselves holding the bag in the end. All this shows the government's revised progressive rate system is little better than robbing Peter to pay Paul.