Korea Electric Power Corp. (KEPCO) is expected to post 2.4 trillion won (US$2.13 billion) in operating loss this year. Accordingly, the company has hastily come up with emergency plans to cut costs by 1.7 trillion won (US$1.51 billion).
KEPCO’s “Emergency Management Plans” released on Feb. 12 estimate the company’s operating loss and net loss for 2019 at 2.4 trillion won (US$2.13 billion) and 1.9 trillion won (US$1.69 billion) respectively. “This is largely due to an increase in environmental expenses aimed at strengthening safety at nuclear plants and following the renewable portfolio standard (RPS),” a company official said. The company is aiming to reduce its expected operating loss to below 1 trillion won (US$890.47 million) by cutting down various costs.
The key to cost cutting is the abolition of the "settlement adjustment factor" designed to compensate losses of KEPCO’s power generation subsidiaries. KEPCO is planning to gain a profit improvement effect worth 1.1 trillion won (US$977.78 million) by discontinuing loss compensation for its subsidiaries. The settlement adjustment factor is designed to guarantee a reasonable profit for power generation subsidiaries when KEPCO purchases electricity from them. It is used by KEPCO to share profits among its power generation subsidiaries, such as Korea Hydro & Nuclear Power Co., Korea Midland Power Co., Korea Western Power Co., Korea South-East Power Co., Korea Southern Power Co. and Korea East-West Power Corp.
Currently, when a power generation subsidiary makes a net loss, profits of other power generation subsidiaries are used to make up for it. When this is not enough, KEPCO dips into its own purse to compensate for the loss. The estimated amount of KEPCO’s payment to its power generation subsidiaries comes to 1.1 trillion won (US$977.78 million) this year. KEPCO plans to abolish this compensation system to cut costs.
In addition, KEPCO has presented a plan to improve the progressive power rate system for households to raise its profit. The company announced that a public-private task force formed to improve the progressive electricity rate system will come up with a reform plan by the end of March. KEPCO plans to implement the plan by June after obtaining approval from its board in May.
KEPCO has not disclosed an estimate of profit improvement expected through the electricity rate reform. However, some experts point out that it is contradictory to include the electricity rate reform in KEPCO’s profit improvement plans, given that KEPCO president Kim Jong-gap has stressed several times that the company is not trying to change the electricity rate system to solve its financial problems.