Korea Electric CEO Follows Predecessor in Seeking Higher Prices

Korea Electric Power Corp. (015760)’s Chief Executive Officer Cho Hwan Eik said the utility must increase electricity prices to forestall a power crisis.

“We should try with all our heart” to raise tariffs this year, Cho told employees yesterday, according to an e-mailed statement from the state-owned utility. “If we fail to chop twigs with an ax, we should try it two or three times.”

Cho was appointed on Dec. 17 after a struggle between the government and his predecessor Kim Joong Kyum over raising prices led to his resignation in November, before the end of his term. South Korea’s power consumption surged to a record 76,522 megawatts yesterday, compared with a maximum generation capacity of 80,710 megawatts.

The difference falls short of a reserve buffer of 10 percent and is making the government ask large consumers to alter their working hours to avoid blackouts during peak hours. South Korea’s power exchange has sounded alerts and controlled consumption whenever the reserve has fallen to near or below the 4,000-megawatt safety threshold set by the government.

“The possibility that the new chief executive will raise tariffs is gaining ground,” said Kim Sang Ku, an utilities analyst at Kiwoom Securities Co. in Seoul, who has a buy rating on Korea Electric shares. “The government is likely to change the country’s electricity tariff system to cost-based pricing.”

Korea Electric purchased power at 103 won a kilowatt hour and sold it at 94 won in the first half of 2012, the company said in a statement on July 27. The utility had accumulated losses of 10.3 trillion won ($9.7 billion) from January 2008 to September 2012. The country’s Ministry of Knowledge Economy decides on proposals for tariff increases after considering the impact of inflation and discussions with policy makers. South Korea caps electricity prices to control inflation.

Korea Electric fell 1 percent to 31,300 won as of 1:10 p.m. in Seoul trading after touching a 27-month high yesterday. The benchmark Kospi index dropped 0.8 percent.

To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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