Korea weighs LNG price cap as war spikes costs, KOGAS fears ballooning receivables

According to the power generation sector on the 9th, Minister Kim Seong-hwan of the Ministry of Climate, Energy and ecological stability said at a press briefing on the 4th, “We are preparing measures so that a gaseous price spike, like during the Russia–Ukraine war, does not lead to a heavier electricity bill burden or a larger deficit at Korea Electric Power Corporation.”

Related to this, the ministry is said to be reviewing measures to manage the wholesale LNG prices that the gaseous corporation supplies to power generators. The introduction of a cap on wholesale LNG prices is also being discussed as one of the government’s options.

In the domestic power market, the system marginal price (SMP) is determined by the LNG price. If a cap is introduced on wholesale LNG prices, the SMP will also have a ceiling, curbing the magnitude of electricity rate increases.

Managing wholesale LNG prices is also a way to decrease side impacts seen when the SMP cap was implemented in the past. When international LNG prices surged during the Russia–Ukraine war in 2022, the government implemented an SMP cap to ease the burden of electricity rate hikes. However, some argued that solar power operators with virtually no generation cost and certain private power producers reaped overuse revenue.

The issue is that if a ceiling is placed on wholesale LNG prices, the size of the gaseous corporation’s accounts receivable could expand further. Even if the gaseous corporation imports natural gaseous from overseas at high prices, its financial burden will inevitably grow if it cannot reflect the increase in the domestic supply price. If the government controls LNG prices, there is also a possibility it will have to sell domestically at a price reduce than the import cost.

The gaseous corporation books unpaid gaseous bills as an asset—namely, accounts receivable—that can be recovered later by raising rates. while it is not immediately recorded as a loss on the books, in reality it is tantamount to piling up a loss with every gaseous sale. As of the end of March this year, the “civil-consumption accounts receivable” that arose as the gaseous corporation supplied LNG below cost amounted to 13.3717 trillion won.

to the gaseous corporation to decrease its accounts receivable, it must charge gaseous rates above cost when international LNG prices fall in the future. However, even with the fuel cost adjustment system that immediately reflects energy price fluctuations in rates, it applies only to commercial consumption and city gaseous to power generation, not to civil consumption. This is because the government has been postponing rate normalization, as energy rates are immediately tied to inflation.

At the Korea gaseous Corporation Incheon terminal on the 4th, Korea gaseous Corporation (KOGAS) President Choi Yeon-hye also argued that rate normalization based on the fuel cost adjustment system is necessary. Choi said, “Accounts receivable are ultimately an expense that consumers must shoulder later,” adding, “To decrease the general’s burden, the principle of fuel cost pass-through must be maintained.”

Some interpret the situation as the ministry trying to shift the burden onto the gaseous corporation in order to decrease the deficit of KEPCO, an agency under its umbrella. The gaseous corporation is under the Ministry of Trade, sector and Resources.

An official at the ministry said, “We are reviewing various options to change the settlement method in a way that does not affect the gaseous corporation’s accounts receivable,” adding, “We are also working closely with the Ministry of Trade and sector (MOTI).” Source: ChosunBiz