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Kepco may have to pay your bills

Electricity discount could see utility firm covering billions in fees
June 20,2019
Korea Electric Power Corporation (Kepco) is going to feel the heat this summer as the government is expected to introduce regular summer discounts on household electricity bills starting this year, leaving the electric utility company to pick up the bill.

After a consultative body recommended Tuesday that the government standardize electricity bill discounts in July and August as part of its efforts to overhaul the current progressive household billing system, analysts say that Kepco will have to shoulder the nearly 300 billion won ($255 million) cost of the discounts.

“This year’s summer discount will be at 253.6 billion won based on average use, although it could reach up to 284.7 billion won based on figures from last year during the hot summer,” said Choi Go-woon, an analyst at Korea Investment & Securities in a report.

“Ultimately, Kepco will take on the burden of the discount,” added Choi. “The government will, in theory, make up for the losses from Kepco. However, considering the difficulty it had last year, such expectations are low.”

The discount adds woes to the struggling utility company.

Kepco reported its worst-ever first-quarter operating loss last month of 629.9 billion won, far below analyst expectations of losses at 41.9 billion won.

Kepco’s fortunes have dimmed in recent years since the current administration vowed to shift from traditional sources of energy such as coal and nuclear power.

Amid the government initiative, Kepco’s annual operating profit declined from 12 trillion won in 2016 to 4.9 trillion won in 2017. Last year, Kepco reported an annual operating loss of 208 billion won.

Kepco officials have expressed concerns over additional costs.

“There should be commitment to social responsibility, but we must also seek the interests of shareholders so the board does not further burden Kepco,” said Kwon Ki-bo, head of sales at Kepco, during a public discussion on the billing system overhaul earlier this month.

Analysts, however, explained that the new discount could have minimal impact considering that it is similar to last summer’s temporary discounts.

“Kepco’s electricity tariffs in the third quarter of 2019 are expected to be largely similar to levels a year before because the reformed system is a near copy of the temporary rate cut last year,” said Kang Seong-jin, an analyst at KB Securities.

Analysts added that the new recommendation clears up uncertainties and could lead the company to focus on improving earnings.

“As earnings pressure has increased with the easing of household progressive rates, the government and Kepco will likely focus on … reducing costs,” said Hur Min-ho, an analyst at Shinhan Investment, in a report. “The easing of the progressive system could be the final bad news.”

“Considering the worsening financial situation, further policies that would place [Kepco] at a disadvantage will likely be limited,” said Choi.

Kepco is expected to hold a board meeting on Friday to decide whether to implement the discount recommendation from the expert panel.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]