Deputy Prime Minister and Finance Minister Choo Kyung-ho holds a watermelon at a retail market in Seoul, June. 5. Korea Times file
By Lee Kyung-min
The finance and energy ministries are in a bind over raising electricity rates, a double-edged sword and a major headache for policymakers increasingly pressured to mitigate the impact of a spike in inflation and global energy prices, according to market watchers and officials, Wednesday.
The state-run Korea Electric Power Corp. (KEPCO) maintains that electricity rates capped by the previous Moon Jae-in administration should be normalized to reflect the surge in global prices of key commodities, triggered and sustained by the Russian invasion of Ukraine. The Ministry of Trade, Industry and Energy shares the same view.
However, the Ministry of Economy and Finance says more prudence is required, since even the slightest increase in key energy prices is closely tied to living expenses and can add to low-income households' financial strain. A significant rate hike will further stoke inflation already accelerating over the past year, propelled by global geopolitical uncertainties and moderate economic recoveries around the world. 
Minister of Trade, Industry and Energy Lee Chang-yang adjusts his suit jacket in a car. Korea Times file
KEPCO plans to submit a plan, Thursday, seeking a quarter-on-quarter electricity rate increase of up to 3 won per kilowatt hour (kWh). It is also demanding that the current maximum ceiling of 3 won be raised to 5 won.
The government has already hiked the per-kWh fuel cost twice ― once in April and again in October. But those were more than offset by the recent global price surges of crude oil, coal and liquefied petroleum gas (LPG).
Further complicating the issue is April's 164.7 percent year-on-year spike in the system marginal price (SMP), the price KEPCO pays its power-generation subsidiaries to buy electricity.
The SMP stood at 202.11 won per kWh in April, up from 76.35 won a year earlier, exceeding the 200 won mark for the first time.
"We plan to submit the rate hike plan to the ministry as planned," a KEPCO official said. "It will help us weather the 7.78 trillion won operating loss from the first quarter of this year."
KEPCO suffered an operating loss of 5.86 trillion won last year, with some market watchers fearing the loss could widen to 30 trillion won, depending on the country's energy pricing policy.
Second Vice Minister of Trade, Industry and Energy Park Il-jun said discussions are taking place with the finance ministry to find an appropriate level of increase for electricity fees.
"The electricity rates were kept low, due primarily to the previous administration's energy policy directives defined by its nuclear phase-out policy," Park said during a meeting with the press in Sejong, Wednesday. "We are well aware of the urgent need to revise the pricing policy, despite being stymied by global uncertainty risks."
