[EDITORIAL] Electricity rates

[THE INVESTOR] As the scorching heat wave continues, complaints are growing about the current electricity pricing system in South Korea. Many grumble that they cannot keep their air conditioners on due to concerns about high electricity bills.

The power bill for a household that consumes 200 kilowatt-hours of electricity per month is 25,000 won (about $22.5). But the rate would soar to 250,000 won if it consumes 600 kWh by running an air conditioner eight hours a day throughout the month. While the amount of power consumption increases three times, the bill surges 10-fold.

This is because the power rates for residential customers increase steeply in accordance with the amount consumed. In contrast, a flat-rate system is applied to industrial and commercial users.

The residential electricity tariff consists of six stages. For the bottom stage with monthly consumption of 100 kWh or less, the rate is 60.7 won per kWh, lower than the 81 won per kWh for industrial customers or 105.7 won per kWh for commercial users.

But residential users begin to pay higher rates than industrial or commercial customers when their power consumption exceeds 100 kWh a month.

Residential users are charged 125.9 won per kWh if they consume between 100 kWh and 200 kWh per month. The rate for the top category -- exceeding 500 kWh per month -- is punitively high: 709.5 won per kWh, which is 6.7 times the commercial rate, 8.8 times the industrial rate and 11.7 times the rate for the lowest stage on the residential tariff.

The current tariff system was introduced following the first oil shock in 1973. At the time, power generation was not sufficient so it was necessary to curb household electricity consumption to meet the demands from industries.

But things have changed. Household power consumption has gradually increased due to the widespread use of home appliances. In summer, air conditioning has become indispensable as the temperature tends to rise to an unbearably high level.

Yet Korean households still consume far less electricity compared with their peers in other OECD countries, because they are accustomed to conserving power. In 2011, the average per capita electricity consumption of Korean households was 1,240 kWh, about half the OECD average of 2,448 kWh.

In contrast, Korean companies tend to consume electricity excessively, taking advantage of the beneficial pricing system. In 2011, Korea’s industrial electricity consumption reached 4,617 kWh per capita, almost double the OECD average of 2,445 kWh.

It is unreasonable to suppress power consumption of frugal-minded households with punitively high rates while letting wasteful manufacturers and commercial establishments use electricity excessively.

In this regard, it is little wonder that a growing number of households are filing complaints against Korea Electric Power Corp., the state-run power monopoly. They hold that it is unfair to apply a sliding fee scale only to residential customers.

KEPCO argue that simplifying the residential tariff could result in significantly higher electricity bills for low-income households.

Yet the argument is hardly convincing. There could be many ways to reform the current pricing formula without increasing the burden on low-income families. For example, KEPCO can increase its revenue by abolishing the rate cuts it offers to big corporate clients.

KEPCO could also use part of its hefty profits to lower the rates for residential customers. Last year, it posted 11.3 billion won ($10 billion) in operating profits, up from about 5.8 trillion won in 2014. The figure is expected to reach 14 trillion won this year.

(theinvestor@heraldcorp.com)